Average total compensation for directors at the 200 largest U.S. companies has climbed above $195,000 per year, according to a new study by Pearl Meyer & Partners, a practice of Clark Consulting.
Total compensation rose 11 percent, for a second straight year of double-digit growth. In addition, compensation in general continued a recent trend away from stock options and toward restricted stock grants, and more boards adopted minimum stock-ownership requirements.
“Director remuneration is catching up to the greater demands of board service in the current governance environment,” said David N. Swinford, senior managing director of Pearl Meyer, in a statement. Board members “are confronted by greatly increased time demands, a more rigorous regulatory landscape, and a shrinking pool of willing candidates who meet new standards of expertise and independence.”
A record 86 percent of the 200 largest companies provided directors with grants of full-value shares; during the past year, those grants rose an average one-third in value, to $67,801. On the other hand, only about half of these companies provided directors with stock options, compared with three-quarters of companies in 2002. Option values fell for the third straight year, down 13 percent, to $43,235. All but three of these companies provided stock as part of their compensation.
Audit-committee and compensation-committee chairpersons continue to be compensated well, in large part because of the importance and controversy of the positions. Pearl Meyer reported that audit-committee retainers rose an average of 19 percent, to $16,082; compensation-committee retainers rose an average of 14 percent, to $11,312. Nonetheless, compensation declined slightly for the average committee member, according to the report, due mostly to the elimination of committee meeting fees by some companies.
Of the 24 industries studied by Pearl Meyer, the securities and health-care industries paid their directors the most; average board compensation for those sectors was nearly $350,000. Surprisingly, the diversified financial industry, which usually ranks near the top, dropped to eighth place in total compensation, at about $204,000. The decline was due largely to a steep drop-off in full-value grants, the only form of board equity used in the financial sector, according to the report. The lowest average levels of pay were reported by companies in the wholesalers/distributors and energy/utilities industries, at about $155,000.
During the past five years, noted Pearl Meyer, average pay for a director of a major U.S company climbed 42 percent, to $195,443. In that time, full-value stock awards grew 230 percent; the value of stock option grants fell 16 percent.