Outside Board Members Earning Record Sums

Average annual compensation surpasses $100,000, says survey.

The average total compensation for outside board members of S&P 500 companies has set a record high, increasing to an average of $100,807 in 2000, according to a recent study by New York-based global management consulting firm, Towers Perrin.

The study assumes that the average board member meets eight times a year and directors serve on at least two committees and chair one committee.

The reason for the hike in compensation is primarily due to an increasing number of companies opting to compensate their directors through the use of stock instead of cash payments.

“Until relatively recently,” says Ted Jarvis, a consultant at Towers Perrin, “directors’ compensation has been paid almost entirely in cash. But, over the last 10 years a growing number of companies have started to pay outside directors a combination of cash and stock or all stock.”

Other findings in the study:

  • Average stock compensation–mostly in the form of stock options– increased to $59,430 in 2000 from $45,500 in 1999, while average cash compensation fell to $46,000 in 2000 from $48,200 the previous year.
  • 89 percent of the companies surveyed offered annual stock-based grants to outside directors, while only 11 percent paid annual compensation entirely in cash.
  • Only 6 percent of the companies offered retirement benefits, continuing a descent from 22 percent since 1997.
  • Board retainer fees accounted for $27,125 of total cash compensation. Other compensation included a $1,250 average fee for attendance at board meetings, a $4,000 average retainer for committee service, and a $1,000 average fee for attendance at committee meetings.
  • In addition to the retainer and attendance fee for normal committee service, the study revealed that committee chairpersons receive a $4,000 average retainer and a fee of $500 per committee meeting.

“The $100,000 hurdle really does represent a milestone of sorts,” says Jarvis. “Years and years ago,” a seat on the board cost the company a mere “20 bucks a year.” Back then, explains Jarvis, most board members embraced their titles because of what that position bestowed and opportunity it offered to network.”

History of Board Compensation

By the late 1970s and early 1980s, however, companies began to introduce alternative fees to directors’ compensation. For example, board members would receive an extra thousand dollars for each meeting they attended, in addition to their general retainer, which averaged at about $25,000.

“Gradually,” says Jarvis, “the retainer began to be paid half in cash and half in stock, or there would be a stock-based component added on. For example, instead of getting $25,000 in cash, they would get $10,000 in cash and $15,000 in equivalent value in common stock.”

So will cash compensations soon become obsolete? No, says Jarvis. In fact, “we have seen cash payments creeping up, although very modestly, due to the rising market over the past three years.”

However, given the blowup among tech stocks, it will be very interesting to see how the numbers come in when the new round of proxies are filed this spring.

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