Human Capital & Careers

Board Pay Surges 13 Percent

Committee work garners more lucrative fees; so do directors in the securities industry.
Stephen TaubAugust 13, 2004

What a difference Sarbanes-Oxley apparently makes.

True, the Sarbanes-Oxley Act has increased the accountability and workload of public company directors. But the added responsibilities have come with a pay hike.

The average director at the largest 200 U.S. industrial and service companies got a 13 percent raise, to nearly $176,000, in 2003, according to a new study by Pearl Meyer & Partners, a compensation-consulting firm. This follows two straight years in which board pay was nearly flat, the study found.

Directors took in an even fatter increase if they sat on one of those specialized committees. Committee members received $23,000 on average, up 35 percent from the prior year. Audit-chair fees and retainers swelled 47 percent, while compensation committee heads received a 24 percent pay hike, according to the consultancy.

Consistent with other studies that vetted executive compensation, stock options are playing less of a role. For the first time since equity became an essential part of director compensation programs a decade ago, the use of full-value shares surpassed stock options, say officials at Pearl Meyer.

Indeed, on Thursday, MCI Inc. announced that board members would invest 25 percent of their directors’ fees in MCI common stock. The move is one of many governance initiatives the telecom company had agreed to previously.

The Pearl Meyer data is based on information contained in company proxies, and the full report will be released in the fall.

“Board pay is catching up with the new realities of board service — more responsibility, more time and a lot more pressure,” said Edward Archer, a Pearl Meyer managing director. “These leading boards have moved from the rear guard into the front lines of corporate governance.”

Archer estimated that an average director of a top 200 company spends one-third more time on the job now than he or she spent two years earlier. Drilling further into the data, Pearl Meyer found that the percentage of pay delivered in the form of equity–whether in full-value shares or stock options–declined for the second straight year, from 60 percent to 57 percent of total board remuneration.

More specifically, average equity values increased by just 7 percent, to more than $99,000. Cash compensation, on the other hand, surged 21 percent to $75,000, including a 17 percent increase in average cash retainers, to $45,000.

Further, fewer companies (59 percent) granted stock options to directors in comparison with the 70 percent that granted them the prior year. Stock- option values were down more than 5 percent to about $49,000, partly as a result of the market slump in the first half of 2003, while full value awards rose 23 percent to more than $50,000, according to the firm.

Which industry had the highest paid board members? The securities industry, where total pay averaged $307,000, about 75 percent more than the average top-200 director. The industry also reported the largest stock awards, at $234,000; and second highest committee fees, at $28,000.

Diversified financial companies ranked second in total pay, averaging $258,000, followed by the health-care industry, at $255,000. That’s despite health-care’s cash retainer ranking the lowest among the 24 industries studied at $35,000. The securities sector provided the second-lowest board meeting fees at $2,500 annually.