Human Capital & Careers

Director Pay Climbed 12 Percent in 2006

Value of equity-based compensation rose 16 percent but may soon play a diminishing role, according to a new study.
Stephen TaubFebruary 2, 2007

Average board-member compensation climbed about 12 percent in 2006, to a mean of $160,439, according to a new study from Institutional Shareholder Services. Median pay increased 10.5 percent, to $143,123.

The increase was driven by a 16 percent rise in the value of equity-based compensation, according to the ISS, while the cash portion of a typical pay package rose just 5.2 percent. The study also observed, however, that stock options have a diminishing role in director compensation.

The ISS looked at proxy and other filings through November 3, 2006, and examined board structure, composition, and compensation at 1,433 of the S&P 1,500. The shareholder advisory firm reported that last year, 61 percent of a typical director’s pay package was based on stock, compared with 59 percent in 2005. The stock-based component was highest in the health-care (69 percent) and information technology (68 percent) sectors.

The ISS observed that only 54 percent of companies granted stock options to their directors in the last disclosed year, compared with 58 percent the prior year and 66 percent the year before that. “If the current trend continues, fewer than half of the study companies will grant stock options to directors within the next year or two,” the ISS asserted.

The study also noted that fully 51 percent of companies reported awarding restricted or deferred shares, far more than the 44 percent that did so a year earlier. According to the ISS, this was the first time since it began its director-pay studies that more than half of the companies made these awards.

Fully 95 percent of the companies in the study provided annual retainers. The mean, $44,608, and the median, $37,500, each reflected a 7 percent increase for 2006. Only 1 percent of the companies paid their retainers solely in shares; 82 percent paid primarily in cash.