Board Director Pay Hits Record $251,000 for 250 HoursJeff Green and Hideki Suzuki
Pay for directors at Standard & Poor’s 500 Index companies rose to a record average of $251,000 last year, the sixth straight year of increased compensation since federal rules began requiring disclosure.
Boards have boosted pay for their members a total of 15 percent since 2007, data compiled by Bloomberg show. Fidelity National Information Services Inc. topped the list after handing out a $9.5 million retention bonus. News Corp. and Costco Wholesale Corp., which awarded some directors more than $1 million in consulting fees, came in second and third.
The average conceals a wide range: Directors at Warren Buffett’s Berkshire Hathaway Inc. made the least, at $3,800, while 19 companies paid their directors more than Buffett’s $423,923 compensation as CEO. The average pay for directors is almost six times the $42,700 average salary for private-sector workers holding down full-time jobs.
“Who makes decisions about director pay? The directors,” said Paul Hodgson, director of corporate governance researcher BHJ Partners in Portland, Maine. “Shareholders can sit back and say ‘These directors are being paid so well that I can’t see them ever questioning management on anything because this is a gig they would hate to lose.’”
Employees in the private sector make their salaries working an average of 34.4 hours a week, or 1,789 hours annually, based on Bureau of Labor Statistics data. Directors typically work 250 to 300 hours a year, according to estimates by executive search firm Korn/Ferry International.
The pay increase reflects rising hours of work annually for directors and risks to their reputations from activist shareholders’ campaigns, according to Joel Koblentz, who helps companies hire new directors as senior partner at the executive recruiter Koblentz Group in Atlanta. Rebounding stock prices in the economic recovery also play a role.
The rise since 2007 trails the 33 percent gain in S&P 500 CEO compensation, which averaged $10.7 million last year, according to executive-pay data provider Equilar Inc. It still trumps the 2.8 percent gain in per-capita disposal income for wage earners over the period, based on data from the U.S. Bureau of Economic Analysis.
“It’s kind of a conundrum,” Koblentz said. “Trying to find board members who are willing to step up and play their roles is a difficult task and you want to balance that out with appropriate compensation.”
Some directors this year have found the spotlight: Ray Irani at Occidental Petroleum Corp. and Ray Lane at Hewlett-Packard Co. have lost their jobs as investors expressed dissatisfaction. JPMorgan Chase & Co. lead director Lee R. Raymond faced pressure from activists when they tried to make Chief Executive Officer Jamie Dimon relinquish his chairman role. There was little debate over board members’ pay, however.
“By and large, people still don’t know who is on the board of most companies,” said Aaron Boyd, director of governance research at Equilar in Redwood City, California. “The CEO still takes the brunt of it.”
Companies are now required to report total compensation for directors each year and provide breakdowns of fees, stock awards and other reimbursement. The proxies include payments for duties outside the boardroom such as consultant fees or retirement income. Such expenses characterized as “other” skewed the average for half of the 11 boards with compensation over $500,000, data compiled by Bloomberg show.
At the top was the retention fee for William P. Foley II, a director at Jacksonville, Florida-based Fidelity National. In return for $9.5 million, he ran for re-election on the board, agreed to non-compete conditions and accepted the role of vice chairman.
Costco’s board jumped to third-best paid in the S&P from No. 210 in 2011 after the Issaquah, Washington-based warehouse-club chain paid $4.6 million to director Richard Libenson for consulting services -- $300,000 for a firm owned by Libenson and the rest in restricted stock units.
Northrop Grumman Corp.’s board was ranked fifth last year after paying $4.4 million for the security protection of Lewis W. Coleman, who has since resigned from he board. A $906,217 consultant grant to B.M. Rankin, a co-founder at Freeport-McMoRan Copper & Gold Inc., helped keep the Phoenix-based company at rank No. 11.
“You have to really justify why one director is getting a high multiple of other directors, in particular,” said Paul Lapides, director of the Corporate Governance Center at Georgia’s Kennesaw State University. “It’s great when you look in the mirror, but it’s not great in the boardroom. Everybody only gets one vote.”
Randy Belote, a spokesman for Northrop Grumman, had no comment beyond the proxy. Eric Kinneberg, a Freeport spokesman, declined to comment. Kim Snider, vice president of marketing at Fidelity National, didn’t return e-mails or phone calls seeking comment; neither did the office of Costco’s chief financial officer.
At New York-based News Corp., Joel Klein received $4.5 million in cash and stock for his duties as an executive vice president and as CEO of the education unit. Arthur Siskind was awarded $5.2 million, including cash and stock awards, for his job as a senior adviser to CEO and Chairman Rupert Murdoch. Neither Klein nor Siskind got any additional pay for being a director. Nathaniel Brown, a spokesman, said the company had no comment beyond its proxy statement on the pay.
Even when the pay is for activities outside the boardroom, the concern is that the compensation will influence votes around the table, said Lapides, who is on the board of Sun Communities Inc., where he was paid $143,601 last year. Directors with ties to the company can skew decisions in favor of the management, who is already represented on the board by the chief executive, he said.
“When you have more than two conflicted people, it’s amazing how the discussion of those three can bias the discussion of everyone else,” Lapides said.
At boards such as Salesforce.com Inc., with average compensation of $690,053, Oracle Corp., with $615,866, and Occidental Petroleum Corp., with $540,047, most directors were well-paid compared to peers, according to the proxy data.
Biotech company Celgene Corp., whose stock was among the top 15 performers in the S&P 500 this year, ranked No. 10 in board compensation in 2012, up from 38 the previous year, in part because of the rising value of stock grants. Brian Gill, a spokesman for Summit, New Jersey-based Celgene, declined to comment beyond regulatory filings.
Jane Hynes, a spokeswoman for San Francisco-based Salesforce.com, Deborah Hellinger, an Oracle spokeswoman, and Melissa Schoeb, a spokeswoman at Los Angeles-based Occidental, had no comment.
Eaton Corp. was among the top 10 for the first time because of more than $5 million to repay directors for taxes they owed related to unvested shares held at the time of the acquisition of Cooper Industries Plc. The structure of the 2012 deal resulted in taxes for some directors and the Dublin-based manufacturer opted to reimburse the costs, according to the proxy. Scott Schroder, a spokesman, said that without those payments, director pay was in line with industry averages.
Waste Management Inc. rose to 13 from 172 in 2011 after the board decided to pay itself for two years at once, for tax purposes. Lynn Brown, a spokeswoman for for Houston-based Waste Management, didn’t respond to requests for comment.
“There’s no independent directors’ committee that doesn’t have any directors on it,” said BHJ Partners’s Hodgson. “So it’s them sitting down and deciding they don’t want to pay taxes, for example.”
One main reason directors probably feel justified in raising their own pay is that the average number of hours has increased at least a third in the last several years to about 250-300 hours annually, said Stephen Mader, vice chairman and managing director at executive search firm Korn/Ferry International in Boston.
Regardless of its level, board compensation should be linked to the stock’s performance, said Nell Minow, a corporate-governance consultant at GMI Ratings.
“That’s a lot of money, and you don’t want to give them too much money, but I’m more concerned that we don’t tie pay to performance,” Minow said.