Independent Directors See Compensation Components Stirred Up

Much of the 12.1% decrease in the average amount of compensation directors received from stock options came from the number of companies that decided against offering stock options to independent directors. Only slightly more than half (52%) of the 255 companies examined offered stock options to non-employee directors in 2002, down from 57% just one year prior, according to data form The Todd Organization.

“While part of the decline in independent directors’ stock option compensation is attributable to difficult stock market conditions in 2002, there is a marked shift at America’s largest companies away from stock options when it comes to compensating independent directors,” Scott Holton, an executive benefits consultant with The Todd Organization, said in a statement.

Overall, the study found non-employee director compensation averaged $112,698 in 2002, down from $114,490 recorded in 2001. Even though down from years past, stock options still make up the largest portion of the total compensation package at 38%. Cash awards were second, making up 33%.

Rounding out the remaining 29% of the director compensation awards were more direct forms of stock compensation, which many companies have turned to in lieu of traditional stock option awards. In 2002, 59% of the companies examined offered other stock compensation – including outright grants of shares and deferred, restricted, and phantom stock programs – up from 41% in 2001.

Additionally, the analysis found that two-thirds of public companies with revenues of more than $5 billion offer directors compensation deferral plans. A minority of companies also offers retirement plans (13%), charitable gift programs (12%), and matching gift programs (9%) that help bolster directors’ philanthropic activities.

Audit Chair

Also on the rise has been an increase in compensation for independent Audit Committee chairmen. In 2002, 184 of the 255 companies paid an additional premium averaging $11,499 for Audit Committee chairmen, a 41% increase from the average additional premium of $8,145 that 163 companies paid for non-employee Audit Committee chairmen in 2001.

“Many companies increased Audit Committee chairmen compensation during 2002, in conjunction with the summer enactment of the Sarbanes-Oxley Act. Others took a wait and see approach. Now, as companies see the results of our study and look to make changes to their director pay programs going forward, it is quite possible that we could see even higher premiums paid to Audit Committee Chairmen in 2003,” said Holton.

More information is available on The Todd Organization’s Web site at www.toddorg.com .