Outside Directors Work Harder but Earn More

November 14, 2007 (PLANSPONSOR.com) - Outside corporate directors may have more responsibility these days, but they are apparently being compensated for those extra duties, according to a new study.

A Towers Perrin news release said its outside board member compensation report found that total remuneration increased to a median level of $174,500 in FY 2006, up 8% from $162,285 in FY 2005. The annual review covers the practices of all the publicly traded companies in the Fortune 500.

“Compensation for outside board members continued to grow at a healthy pace, reflecting a tight market for qualified candidates and the significant responsibility and time commitment involved,” said Paula Todd, a Managing Principal of Towers Perrin, in the news release.

The study identified four other key trends:

  • In line with recent years, particular roles that require additional time and effort as well as specialized competencies commanded premium levels of compensation. These included serving as the board’s chairman or lead director, chairing key board committees, or serving on certain time-consuming groups such as audit committees.  
  • Thirty-six percent of companies granted stock options to outside directors in FY 2006, down from 39% in the prior year. At the same time, the number of companies granting full-value shares climbed from 77% in FY 2005 to 81% in FY 2006.
  • In FY 2006, 68% of companies studied disclosed the existence of stock ownership guidelines for directors, up from 64% in FY 2005.
  • New disclosure tables in proxy statements are starting to affect how directors are paid.   Having to disclose specific values for perquisites and benefits is causing more companies to rethink those programs. Director-by-director disclosures highlight compensation differences between directors.