Governance Clean-Up at H&R Block

H&R Block announced what it called "historic" changes to its corporate governance policies intended to give shareholders a greater voice without undermining the role of the board, according to chairman Richard Breeden.

In addition to allowing its shareholder rights plan to expire, H&R Block will separate the roles of chairman and CEO, provide shareholders with a say on pay at its next annual meeting in 2008, and reduce the size of its board from seven to 12 members.

Other bylaw changes approved by the board, and now subject to shareholder aproval,  include:

• Set term limits for directors at 12 years.
• In the event of a material change in a director's career, require that director to submit his resignation to the board, which will then decide to accept or reject it.
• Employee directors must resign their board seats when employment at H&R Block ends.
• Restructured board compensation. Current aggregate director compensation is about  $120,000 per year, of which roughly $75,000, or 63 percent, is paid in cash. The board approved decreasing the annual cash retainer from $50,000 to $40,000, and capping the maximum number of meetings for which meeting fees will be paid.
  
• Eliminated differential meeting fees under which committee chairs received higher meeting fees than other directors. The board approved an increase in the annual retainer of the audit committee chair from $7,500 to $15,000, and established annual retainers of $10,000 for the chairs of the nominating, compensation, and finance committees.
• Voted to reduce current cash compensation, the board also voted to seek shareholder approval for modifications of the director incentive program. Prior policy was to grant each independent director 8,000 stock options each year, irrespective of the value of such options. This program has been terminated, and option grants to independent directors scheduled to be made on June 30 will not occur
  Approved submitting to shareholders a vote at the September annual meeting amendments that will allow H&R Block to award deferred stock units in each fiscal year. These deferred stock units would be granted annually, but will be withheld from directors until six months after the date that they leave the company's board.
  

If the proposed amendments are approved by shareholders, H&R Block said it would issue each independent director an annual award of $100,000 in deferred share units, which would raise aggregate director compensation to approximately $165,000 per year.

The new compensation level for fiscal year 2009 provides for total director compensation approximately equal to the median total compensation for independent directors of a group of 40 companies selected by the compensation committee as being similar in size or other characteristics to H&R Block.

However under the revised program the mix of compensation for outside directors would be approximately 60 percent deferred equity and 40 percent cash, compared to the 63 percent cash and 37 percent immediate equity at present.