Directors at Large U.S. Companies Seeing a More Standard Pay Rate - WorldAtWork Newsline

Aug. 14, 2012 — Director pay levels were relatively consistent among top U.S. companies in 2011, regardless of annual revenue, according to results from Hay Group's "2012 Director Compensation & Benefits Survey." For the second year in a row, Hay Group examined compensation and benefits packages for directors at the 300 largest companies that filed proxy statements between May 1, 2011, and April 30, 2012.

Among top U.S. companies both large and small, median total direct compensation varied by just 21% in 2011, despite dramatic differences in companies' annual revenue. According to the survey, in companies with revenue of more than $40 billion, median director pay was $252,500 in 2011, compared to $209,000 for directors of companies with revenue of less than $10 billion.

"As the accountabilities of public company governance have peaked, the price of director talent has been set. There's a minimum price to compensate directors for their increased exposure and complexity in this environment, independent of the size of the company," said WorldatWork author Irv Becker, national practice leader of the U.S. executive compensation practice at Hay Group. "As pay levels become less of a differentiator in attracting top board talent, it's going to become more critical for organizations to create and maintain positive boardroom cultures with strong values."

Compared to 2010, overall director pay levels increased only slightly in 2011. For the largest U.S. public companies, median total direct compensation for directors grew about 6% from $238,100 in 2010 to $252,500 in 2011. Similarly, pay for directors of public companies with revenue of less than $10 billion grew about 5% from $200,000 in 2010 to $209,000 in 2011. Median direct compensation for all companies, regardless of annual revenue, increased from $213,774 in 2010 to $227,250 in 2011.

Long-term incentive practices, on the other hand, saw a pronounced change. Companies granting stock options decreased from 23% in 2010 to 17% in 2011, while companies granting restricted stock and restricted stock units increased only slightly from 71% to 73%.

"Companies are continuing to remove risk and variation from their director pay packages," said David Wise, senior principal in the U.S. executive compensation practice at Hay Group. "Shareholders expect directors to be focused on protecting shareholder value, and we're seeing a significant shift toward fixed compensation that is more likely to promote balanced decision making over the long haul."

Other findings:

•Companies continued to eliminate board meeting fees. Organizations paying board meeting fees decreased from 35% in 2010 to 31% in 2011, while the median fee remained consistent at $2,000 year over year. Comparably, just 35% of companies paid meeting fees for attending Audit or Compensation Committee meetings. The median fee for the Audit Committee grew slightly to $2,000 in 2011 (vs. $1,500 in 2010), while the fee for Compensation Committee meetings remained at $1,500.

•Committee chairpersons more likely to receive an annual retainer fee. Of the companies surveyed, 94% paid Audit Committee chairs a retainer fee for annual service, compared to 39% that paid a retainer fee to Audit Committee members. For those receiving a retainer fee, the median pay for serving as Audit Committee chairperson in 2011 was $20,000 (the same as in 2010), while the median retainer for serving as an Audit Committee member was $10,000 (also the same as in 2010).

•Annual retainer fees for board service slightly increased. The percentage of companies that paid directors an annual retainer for board service in the form of cash and/or equity in 2011 remained flat at about 99%. The median annual retainer grew slightly from $80,000 in 2010 to $85,000 in 2011.

•Majority of directors received deferred compensation or at least one type of benefit. Nearly all of the companies surveyed had some form of deferred compensation arrangement or at least one type of director benefit. Deferred compensation programs were offered by 60% of companies and the most common form of benefits offered to directors were matching gifts (offered by 43% of companies), followed by spouse travel, accident/death insurance, and continuing education programs, which were all offered by 16% of companies.

Hay Group's "2012 Director Compensation & Benefits Survey" examined compensation and benefits for directors of the 300 largest companies that filed proxy statements between May 1, 2011, and April 30, 2012. Total direct compensation was calculated using the assumption that a director served as a member of the Audit Committee and a member of the Compensation Committee.



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