Board Pay Still Rising; Ownership Guidelines Increased

by Matt Perkins

Compensation for corporate directors has continued to increase in recent years, a new report by the National Association of Corporate Directors(NACD) indicates.

Additionally, the NACD's 2008 Director Compensation Report--to be released in the coming weeks--finds that the trend toward higher pay for audit committees and their chairs, more than any other committee, has also continued. And companies are increasing ownership guidelines for board members.

The report reveals that director pay at small companies increased by 2 percent since 2006 to $112,923, while at large companies it increased by 7 percent to $167,667. And in the top 200 companies it rose 5 percent to $215,000.

Total compensation costs for board fees increased from a median figure of about $448,808 at smaller companies up to $2.02 million at the top 200 in the survey (medians are ranked by revenue). But as the percentage of revenue at those companies it ranges from 0.19 percent to 0.01 percent, respectively. And the study shows that companies are moving away from board meeting fees and toward larger retainer-based fees for board members. Additionally, non-executive chairs receive up to 86 percent more than other board members; lead directors receive up to 27 percent more.

The report finds that audit committee members and chairs still tend to receive larger pay than members and chairs of other committees. For the top 200 companies, audit committee members were paid an average of $10,000, while compensation committee members were paid only $5,500. The chairs of those committees received $25,000 and $15,500, respectively. What’s more, governance committees received only a median of $14,000.

Peter Gealson, COO and director of research for NACD – who yesterday highlighted the report in a webcast with Jan Koors, managing director at Pearl Meyer & Partners – says while audit committees tend to meet more frequently and for longer periods of time, committees should ideally be on the same level, and receive similar compensation. “Just because they’re audit committees…There is no better director (in any certain committee). The audit committee may not be the most difficult to serve on in some cases. Each [board member] has a dramatic role to play. It’s not that I think there shouldn’t be disparity between the pays, it just shouldn’t be dramatic.”

Meanwhile, the majority of companies, the report finds, follow the NACD’s best-practice recommendation of providing at least 50 percent of compensation in equity. Only 44 percent of small companies were found to follow the practice, but Gleason says that number is still a healthy one. “Small companies function differently,” he says. “Some pay all in equity, some strictly in cash. It’s one of those things; it’s difficult to have hard rules where everyone should do this or that. Every company is different.”

The study found movement towards compensating board members with flat retainer-based fees, rather than being paid based on the number of board meetings. “There are situations where you’ve got to pay them (boards) for the value of time,” Gleason says. “I think meeting fees makes sense. To me, it just makes the simplicity of it appealing.”

The report also looks at the male-to-female ratio on boards. For the top 200 companies surveyed, males hold 80 percent of all board seats. Somewhat shockingly, the smaller companies who participated in the survey said they had no women on their boards.

The methodology of this year’s report is different than of years past, as the findings are based on median numbers rather than averages. Gleason says this more accurately reflects director compensation, as in doing so, the NACD has reduced assumptions and used actual committee assignments of incumbent directors. The old methodology was used, though, in comparing director pay to previous years.