Human Capital & Careers

Board Pay Surges 14% at Large Companies

Directors are getting higher retainers and better pay for sitting in the chairman seat. On the other hand, CEOs' pay isn't increasing at the same r...
Stephen TaubOctober 6, 2006

Board compensation continues to soar. The median total pay for independent directors at the 500 largest U.S. companies increased 14 percent compared with last year — from $162,363 to $185,000 — according to consultancy Steven Hall & Partners.

The firm’s report attributes most of the increase to higher cash retainers for board service, which rose 11 percent, and committee chairmanship, which jumped 25 percent to 80 percent.

In addition, the firm, which specializes in executive compensation, found that the smaller companies it examined made the bigger increases: total board remuneration for companies in the bottom half of the 500 studied grew 19 percent. The smaller companies are trying to catch up to what their larger brethren did the previous year and “meet the competitive challenge of recruiting directors in an era of greater responsibility, public scrutiny, and potential personal liability,” said managing director Steven Hall in a press release.

Chief executives are not seeing the same jump in their compensation packages, however. “It is interesting to note that board pay increases by both groups exceed the rate of increase in CEO pay,” added Hall.

Total compensation includes cash retainers, stock awards, and meeting fees for service on both the board and its committees. The study assumes that a director serves either as a chair of one committee and a member of one other or solely as a member of two committees.

The study corroborates recent trends. For example, the report says companies are moving away from stock options as a major form of compensation even as boards continue to award some form of equity to directors. While virtually all (95 percent) of the 1,000 largest companies studied award equity to directors, less than one-quarter have stayed solely with options. What’s more, just under half grant options. On the other hand, 72 percent award full-value shares and 27 percent award both full-value shares and options. According to the study, the median equity award for the top 1,000 organizations is $87,375.

The study also found that 34 percent of the top 1,000 companies have dropped board meeting fees, which generally are $1,500 per meeting. And close to half of the 100 largest companies have stopped paying board meeting fees. For companies not using the fees, median total remuneration is $181,385, compared with $163,350 for those that do have them. Hall attributed this difference to the 38 percent higher cash retainers and stock awards paid by companies that do not use board meeting fees.