Fewer directors receive stock options, board meeting fees
PHILADELPHIA, PA – August 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.
Hay Group’s research found that among top U.S. companies both large and small, median total direct compensation varied by only 21 percent in 2011, despite dramatic differences in companies’ annual revenue. According to the survey, in companies with revenues of more than $40 billion, median director pay was $252,500 in 2011, compared to $209,000 for directors of companies with revenues under $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 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 approximately 6 percent from $238,100 in 2010 to $252,500 in 2011. Similarly, pay for directors of public companies with revenues under $10 billion grew approximately 5 percent 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 percent in 2010 to 17 percent in 2011, while companies granting restricted stock and restricted stock units increased only slightly from 71 percent to 73 percent.
“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 towards fixed compensation that is more likely to promote balanced decision-making over the long haul.”
Other findings from Hay Group’s 2012 Director Compensation & Benefits Survey include:
Companies continued to eliminate board meeting fees. Organizations paying board meeting fees decreased from 35 percent in 2010 to 31 percent in 2011, while the median fee remained consistent at $2,000 year-over-year. Comparably, only 35 percent 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 (compared to $1,500 in 2010), while the fee for Compensation Committee meetings remained at $1,500.
Committee chairpersons were more likely to receive an annual retainer fee. Of the companies surveyed, 94 percent paid Audit Committee chairs a retainer fee for annual service, compared to only 39 percent 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 increased slightly. 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 approximately 99 percent. 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 percent of companies and the most common form of benefits offered to directors were matching gifts (offered by 43 percent of companies), followed by spouse travel, accident/death insurance, and continuing education programs, which were all offered by 16 percent of companies.
About Hay Group’s 2012 Director Compensation & Benefits Survey
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. Additional information about the study can be found at http://bit.ly/PRGA7M. Media inquiries and interview requests can be directed to Andrea Friedman at firstname.lastname@example.org or at 212-584-5476.
About Hay Group’s Executive Compensation Practice
Hay Group’s Executive Compensation Practice works with Compensation Committees and Management at premier organizations across the globe to create tailored solutions that help them meet their governance responsibilities. For more than 60 years, we have helped companies of all sizes and across all industries navigate their complex executive pay issues to achieve desired outcomes and manage exposure. We understand the evolution of compensation practices and help clients manage these changes and prepare for scrutiny. For more information, please contact a consultant in Hay Group’s Executive Compensation Practice at www.haygroup.com.
About Hay Group
Hay Group is a global consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective, and motivate them to perform at their best. With 85 offices in 48 countries, we work with over 7,000 clients across the world. Our clients are from the private, public, and not-for-profit sectors, across every major industry and represent diverse business challenges. Our focus is on making change happen and helping people and organizations realize their potential.