Risk & Compliance

Board Recruitment More of a Challenge

''There's not a lot of new blood coming into the ranks,'' particularly for large public companies, notes one observer.
Craig SchneiderSeptember 2, 2005

Two recent surveys have found that directors are getting harder to recruit and more expensive to pay.

The median compensation for directors who sit on corporate boards at 350 of the largest public U.S. companies rose to $155,000 in 2004, according to an annual survey by Mercer Human Resource Consulting and cited by Bloomberg. That’s an 18 percent jump from the 2003 figure, added the wire service; it includes a 10 percent higher cash payout and 30 percent more in equity.

Equity compensation represented 55 percent of directors’ compensation in 2004, a 51 percent increase compared with 2003, suggesting that companies are trying to align the interests of board members more closely with those of investors, the Mercer survey reportedly observed.

In a separate survey accounting firm Grant Thornton LLP reported that according to 65 percent of executives surveyed, it’s become more challenging to recruit independent directors because of corporate governance rules such as Sarbanes-Oxley. Clearly, part of the challenge is that directors are concerned about taking on personal financial risk. In March, twelve former directors of WorldCom Inc. agreed to pay a total of $61 million, including $25 million out of their own pockets, to settle a shareholder lawsuit.

Ric Marshall, chief analyst for independent research firm The Corporate Library, told Bloomberg that, “there’s not a lot of new blood coming into the ranks,” particularly for large public companies. He attributes the increase in rookie directors to the demands of Sarbanes-Oxley.

Patrick McGurn, executive vice president of Institutional Shareholder Services, noted that individual directors will be able to land bigger pay packages as their skills become more valuable. “Over time, you’ll see more negotiated pay for board members, as opposed to the standard one-size-fits-all approach,” he told the wire service.