Director Pay Rises in Era of Scrutiny
For corporate directors, there’s an upside to all their extra headaches in the post-Enron world: more money.
The median pay for directors at large U.S. companies jumped 18% in 2004, said a study issued Monday by Mercer Human Resource Consulting. The median compensation rose to about $155,000, from $132,000 in 2003, according to Mercer’s review of regulatory filings by 350 companies with annual revenues topping $1 billion.
The rise resulted from a combination of higher annual retainers for directors as well as a surge in stock prices, which lifted the equity part of their pay packages to a record $85,000. Cash compensation rose 10%, and the stock portion rose 30%.
In the last five years, total director compensation has climbed 48%, Mercer found. In 2000, directors at big companies earned median pay of $105,000.
Mercer said companies were sweetening pay packages because it was harder to find qualified directors in the new era of stricter corporate oversight. Some potential candidates are spooked by liability fears and growing workloads, and companies themselves have set the bar higher.
“It’s a new day in terms of compensation. It’s also a new day in terms of governance, accountability and performance expectations at the board level,” said Don Sagolla, principal at New York-based Mercer’s Los Angeles office.
Sagolla said firms were demanding more experience, acumen and independence from board members, whose oversight role has increased because of the 2002 Sarbanes-Oxley corporate reform law and other measures in the wake of blowups involving Enron Corp., WorldCom Inc. and others.
At the urging of corporate governance groups such as Institutional Shareholder Services, companies are forcing directors to serve on fewer boards in order to limit potential conflicts of interest and to make sure they can devote time to the job.
Firms realize that someone serving on two or three boards today might be spending the same amount of time as a director who sat on six to eight boards years ago, said Patrick McGurn, executive vice president of Rockville, Md.-based ISS, which advises portfolio managers.
“You’re trying to pay enough to keep them interested,” McGurn said.
A big part of board member compensation comes in the form of annual retainers, which surged 25% last year to a median of $50,000. Separate fees to compensate board members for attending meetings remained flat at a median of $1,500, Mercer said, as more companies dispensed with per-meeting fees and boosted retainers instead.
Sagolla said companies didn’t want to have to worry about running up costs when calling extra meetings -- and they recognized that the work had become more constant, thanks to conference calls, pre-meeting research and other demands.
Roger W. Raber, chief executive of the National Assn. of Corporate Directors, said U.S. board members put in an average of 125 hours a year when he joined that organization in 1999, but he estimated the current workload at 250 hours.
“It’s not an event four times a year,” he said. “It’s a process.”
To a lesser extent, legal settlements involving former directors of Enron and WorldCom have left some directors wondering whether they wear bull’s-eyes on their backs, Raber said.