US Firms Step Up Corporate Governance Focus

February 12, 2003 ( - US companies are instituting major operational changes to their board of directors as a result of pressure to shore up their corporate governance.

That was the bottom line of a Hewitt Associates survey, which also found that 29% of the organizations plan to increase the percentage of outside directors in 2003, compared to 12% of corporations that actually added to their roster of outside directors last year.

Companies are increasingly maintaining an “arms-length” approach for compensation committees, according to the survey. In fact, Hewitt’s study revealed that nearly all of the organizations surveyed (91%) already have only outside directors sitting on their compensation committees.

Additionally, 89% of these companies’ compensation committees now have written charters, which include:

  • the committee’s purpose, 98%
  • duties and responsibilities, 98%
  • reporting relationship to the board, 81%.

However, Hewitt’s data also shows that a number of these charters are still lacking. For example, 61% of the committees are not subject to an annual performance evaluation through their written charter, 31% don’t have a documented executive compensation philosophy, and 31% don’t have a policy requiring the compensation committee to be made up of outside directors only.

Compensation Shifts

According to the study, the most common types of compensation for outside board members include:

  • an annual retainer, 91%
  • equity compensation, 87%
  • committee chair fees, 78%
  • board meeting fees, 76%.

Within 12 months, nearly four in 10 of the surveyed companies anticipate uping the amount of compensation granted through board retainers and 31% expect to pump up committee chair fees, particularly on the audit committee. Of the companies planning to make changes to outside director pay, 78% said it was to recognize the greater demands on directors while 33% attributed the move to the competitive market for experienced directors.

Hewitt said the corporate governance moves are in response to recent actions by the US Securities and Exchange Commission, Congress, major stock exchanges, and large institutional investors to improve corporate governance practices. Hewitt recently surveyed 70 large, publicly traded US companies for the study.