The Era of Big-Buck Directors

Quality board members don't come cheap.

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Thanks to Corporate America’s increasing obsession with stakeholder value, the days of the boardroom hack are pretty much gone. But a new study on director compensation shows that quality doesn’t come cheap, and it’s likely the competition for board talent will grow stiffer.

Computer and office-equipment companies paid their directors an average of $249,589 in total direct compensation last year, according to a William M. Mercer Inc. study featured in Corporate Board Member magazine. Most of the compensation (83 percent) came from equity grants. Pharmaceuticals companies paid second highest, at $132,356, followed by the insurance and electronics industries, at $120,057 and $117,548, respectively. Not bad for part-time work requiring an average of eight meetings a year. The highest-paid board? Cisco Systems Inc., where directors received $684,123 when stock options are added in, says Corporate Board Member.

“Top-flight corporate directors are a commodity in short supply,” says Yale Tauber, a senior executive compensation consultant at Mercer. “The pool of available directors, qualified people who can take a company public, hasn’t grown nearly as fast as the tech-driven business climate.” Directors for utilities companies pulled down the least — $64,331.

According to Mercer, two out of every three companies include stock options in their packages. The median annual director’s cash compensation package is now $42,250, a figure that’s up just over $4,000 from last year. But add in stock options, and payouts jump another $26,117. Notes Russell S. “Trey” Reynolds III, managing director at The Directorship Group, in Greenwich, Conn.: “If shareholders are benefiting from an increase in the share price, then directors should benefit from that increase as well.”

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