Non-Employee Director Pay Policies Issued

September 30, 2005 ( - The Council of Institutional Investors has issued policies defining the elements that should and should not comprise director pay and the responsibilities compensation committees have in setting that compensation.

According to a CII press release, the components of directors pay should only include a cash retainer and equity-based compensation.   CII says directors should not receive performance-based compensation or change-in-control or severance payments.   Though non-employee directors should not receive retirement benefits such as defined benefit plans, they should be allowed to defer compensation for retirement, the Council says.

As for the compensation committee’s responsibilities, the committee should understand and value each component of the compensation and annually review the sum potentially payable to each director, CII said in the release.   They said the committee should be allowed to retain a compensation consultant to assist in the valuation of director pay packages.

In addition to revealing instances where the committee has retained a compensation consultant, the committee should also include the following in the proxy statement, according to CII:

  • A table with three columns – One column reports the value of each component of compensation paid to each director.   Another column estimates the total value of each director’s pay package. The third column indicates the number of board and committee meetings attended by each director.
  • A disclosure of director compensation, including how pay levels were set, how many meetings involved discussions of director pay, and reasons for changing any director’s pay.
  • An explanation of peer groups used to compare director pay packages, along with differences from the peer groups used to set director pay.

The Council’s complete executive pay policies can be found  here .