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Prevailing Board Comp Practices in Flux
A recent survey of director pay trends by Towers
Perrin found that the median total compensation (cash and
stock retainers, plus fees) for outside directors was
$140,350, up 19% from the prior year. Stock options are
valued using the Black-Scholes model.
Among the other director compensation changes were
the 6% of companies who eliminated meeting fees in favor
of a single cash retainer while the prevalence of
companies paying board meeting payments decreased from
70% to 66%. The number of companies paying committee
meeting fees fell from 71% to 69% while 28% of companies
now pay cash retainers and offer no meeting fees.
“In the two years since the July 2002 passage of the
Sarbanes-Oxley Act, companies have taken great strides in
improving corporate governance, and have made
corresponding changes in the manner and level of their
pay for outside directors,” says John England, managing
principal in the firm’s HR Services business Executive
Compensation consulting practice.
.
According to the findings, companies are cutting their use
of stock options, with only 54% of companies employing
stock options in fiscal 2003 compared to 63% in fiscal
2002. Also 12% of responding firms dropped their annual
stock option grant and a third of companies increased the
full-value share portion of their total annual/recurring
stock. Thirty-five percent of companies now have stock
ownership guidelines for their directors.
In 2003, the mix of cash/stock remained unchanged, with 40%
of compensation delivered in cash and 60% in stock.
Ninety-two percent of companies made an annual or recurring
stock award (options, restricted, deferred and common) to
their directors in fiscal 2003 – unchanged from a year
earlier. The percent of companies awarding restricted stock
to their directors jumped six percentage points to 28%,
with 68% of companies giving
some form of full-value shares (restricted, common or
deferred) to their directors in fiscal 2003 – up from 63%
in 2002.
Eleven percent of companies in the study paid additional
fees to a lead director. The lead director received an
additional average $27,160 in compensation. Twenty-three
percent of companies pay an additional retainer for service
on at least one committee. Of those, 62% pay a premium for
service on the audit committee.
Some 27% of companies allow directors to elect stock in
lieu of cash. Of those, 24% offer a premium to directors
who take their pay in stock rather than cash. The number
of companies offering a cash retirement plan continues to
decline to 1% in 2003 (from 2% in 2002).
The Towers Perrin research includes pay data and practices taken from 2004 proxies filed by 469 of the Fortune 500 companies. The annual research project was conducted by Towers Perrin’s Executive Compensation Resources, the data collection, analysis, research and information services unit of Towers Perrin’s HR Services business Executive Compensation consulting practice.
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