Company Directors See Rising Salaries
Directors of U.S. companies saw their compensation rise about 11% last year and they can look forward to higher pay growth as they face greater scrutiny after this season of corporate scandals, according to a study released Monday.
Pay for chief executives, meanwhile, increased 6.9%, the smallest increase in at least a decade, to $7.04 million, according to the survey of 350 large companies conducted by Mercer Human Resources Consulting. Excluding stock options, annual pay for CEOs fell 2.8% to about $1.6 million in 2001, the study said.
The accounting scandals at Enron Corp., WorldCom Inc. and other companies have put outside directors under increased pressure to ensure that executives aren’t improperly boosting earnings to protect the value of their stock incentives.
Compensation for outside directors in 2001 was $115,687 in fees, options and other stock pay, up 11% from 2000. That’s up 48% since 1997, as companies have given more options and stock to align directors’ interests with those of investors. Median pay for outside directors exceeded $100,000 for the first time in 2000, rising 6.8% to $104,439 from $97,750 in 1999, and then surged last year, Mercer said.
The majority of board members are “becoming increasingly wary of the risks involved in board service,” said Peter Oppermann, a senior executive compensation consultant at Mercer. “The current rash of problems will make it harder for companies to attract good directors in the future.”
“Companies are going to have to pay more to get the level of competency they need on boards,” said Judith Fischer, managing director of Executive Compensation Advisory Services in the Washington suburb of Alexandria, Va.
Directors “are certainly in the limelight now, and they’re taking on more fiduciary responsibilities,” Fischer said. “Their toes are to the fire.”
With legal risks and workloads increasing and stock prices down from highs of 2000, companies are planning to increase cash pay for directors, according to Oppermann.
Stock has accounted for an ever larger share of board members’ compensation over the last half decade, rising each year from 44% in 1997 to 59% last year, the Mercer study found. Oppermann said companies are aiming for a 50-50 mix between stock and cash.
Most of the directors’ 2001 pay raise came from increases in stock-derived compensation, according to the Mercer study. The figures for last year, derived from proxy statements of 350 companies with median annual sales of $6.2 billion, do not yet reflect increases stemming from new responsibilities.
Mercer found computer-and data-service providers gave the biggest pay packages, worth $238,494. Computers and office equipment makers followed with $225,724. Retailing was the lowest-paying industry, with a median of $94,145, trailing industrial and farm equipment companies with $95,984.
The average board has 11 members, including two executives and nine people from outside the company.
Those outside board members were the subject of the survey. The average workload last year was eight full board meetings, plus committee work, according to Mercer.
