Compensation: The Directors’ Cut

The job of corporate director isn’t getting any easier, but board members can take comfort in the fact that at least they are continuing to earn better paychecks. The median pay for nonemployee directors at Fortune 500 companies climbed 7.2 percent to $173,600 in 2007, according to analysis by Equilar, an executive compensation data and consulting firm. The highest-paid directors were those in the energy sector.

The cash retainer, which typically makes up a small portion of director pay compared to the equity portion, got a huge boost last year, jumping from a median level of $50,000 in 2006 to $60,000 in 2007. Aggregate meeting fees also increased from $13,500 to $16,000, though only 52 percent of companies provided them last year, compared to 57 percent in 2006. “The rise in cash payments is a way of directly rewarding directors for the time they spend on the board,” says Alexander Cwirko-Godycki, research manager at Equilar. “It’s also a means of compensating for a lack of board-meeting fees.”

The use of stock options increased slightly to an average of $80,565, while the use of direct stock grants jumped from an average of $75,000 in 2006, to $85,375 in 2007. The changes reflect a move away from options due to the revised accounting treatment (FAS 123R) and backdating problems.

The continued rise in director compensation seems to run counter to increased pay scrutiny in recent years. Yet according to Cwirko-Godycki, “because directors are under more scrutiny, the position is more challenging and the risks to one’s reputation are greater. The workload and pressures associated with the position have increased.” The trends show a slowing of the double- digit percentage gains directors enjoyed earlier in the decade, but with quality directors in short supply, director pay is expected to continue to grow.