Risk & Compliance

Director Pay Rising with Responsibility

One-third of participants in a new survey said that their board sessions ranged in length from a day and a half to two days; committees are conveni...
Stephen TaubOctober 14, 2004

Total compensation for board members surged between 20 and 35 percent last year. However, this growing largesse has come at the cost of significant increases in responsibility and accountability in light of new corporate governance initiatives such as Sarbanes-Oxley, according to a new survey from Mellon Financial Corp.

For one thing, board meetings are lasting longer. One-third of survey participants said their sessions ranged in length from a day and a half to two days. And committees are convening more often. Audit committees are meeting an average of eight times a year — twice as often as just two years ago — and compensation committees now meet an average of five times a year, compared with four meetings last year.

Acknowledging a wider trend documented in other studies, Mellon pointed out that 48 percent of respondents said that their boards have a lead director, while few reported this arrangement last year. And 83 percent reported that they conduct meetings outside the presence of management, far higher that the 55 percent who followed that practice last year.

“Commitment to reform has gone well beyond the tentative measures we saw a year ago,” said Todd McGovern, a principal in Mellon’s compensation practice and corporate governance practice leader. “Boards seem to be increasingly committed to taking a more active and accountable role in corporate governance.”

What’s more, directors are no longer rewarded simply for showing up; 36 percent of respondents said they conducted director performance evaluations, compared with 17 percent a year earlier. More than 25 percent of inside directors were subjected to this evaluation process, compared with just 10 percent the prior year. And committee members were evaluated at 45 percent of respondent’s companies, more than double last year’s 22 percent.

Other findings:

• 41 percent of companies differentiate the retainers they offer to committee chairpeople, with the audit committee typically at the top of the scale. Only 21 percent made this distinction in 2003.

• Equity compensation is offered to directors by more than 90 percent of responding companies. Stock options, however, are now offered at 82 percent of companies, down from 93 percent last year.

• 37 percent of companies now require directors to own company stock, up from 21 percent last year.