Director Compensation rose significantly in 2011, fueled by higher retainers and equity awards

Cash compensation for S&P 500 corporate board directors increased by only 1 percent while total comp increased by 8 percent. Companies are moving away from compensation based upon meeting attendance. Despite long-standing criticism companies continue to offer benefits to directors.

According to a recent study by Mercer of compensation for board members of S&P 500 companies shows pay increased by 8% in 2011 driven by increased board retainers and equity awards. For baseline board service – duties and responsibilities common to directors regardless of service on committees or in other roles – annual cash retainers rose 15% to a median $75,000 and equity compensation increased 10% to a median $131,900. The largest companies in the S&P 500 paid slightly more: in 2011, a director of an S&P 100 company received a median retainer of $85,000 and equity grant of $150,100. Total direct compensation (retainer plus meeting fees plus equity grant) for board service in the same year rose 8% to $216,700. Mercer’s analysis is derived from 2009 – 2011 data-year proxy statement disclosures filed with the Securities Exchange Commission by each company in the S&P 500.

According to Ted Jarvis, Global Director of Rewards Data, Research and Publications at Mercer, the increase in retainers comes as more companies discontinue incremental payments for attending board meetings. For companies continuing this practice in 2011, the median per-meeting fee remained at the 2010 level of $2,000 (which also was the 75th percentile). However, the prevalence of meeting fees among all S&P 500 companies fell from 43% in 2010 to 36% in 2011. Of the 30 companies eliminating meeting fees in 2011, 24 increased board retainers to keep year-over-year cash compensation roughly equivalent. The combination of higher retainers and fewer meeting fees resulted in a 1% increase in median cash compensation.

While nearly all (97%) of the S&P 500 companies grant some type of equity award for board service, the prevalence of companies providing stock options or stock appreciation rights to directors dropped to 22% in 2011 from 26% in 2010. Options are granted typically as part of a portfolio. Among those companies granting options and full-value shares (just 18%), options accounted for about half of the award’s value. Full-value shares as the sole equity vehicle granted to board members is most common, used by more than two-thirds (77%) of S&P 500 companies.

Almost two-thirds (62%) of companies provide at least one equity vehicle on a “fixed value” basis in which the number of shares or options varies from year to year while the dollar value remains constant. This approach to sizing grants is most likely growing in popularity due to wide swings in stock market prices.

Prevalence of benefits increasing

Despite shareholder watchdogs’ long-standing criticism, companies continue to provide a wide variety of benefits to directors and the prevalence of many of these perquisites rose in 2011. The most common benefit, a matching gift policy, was provided by 32% of the S&P 500 companies in 2011 compared to 29% the year before. Life insurance and spousal travel reimbursement were offered by 15% of companies in 2011 (up from 14% and 13%, respectively in 2010). While only 15% of the S&P 500 companies disclosed reimbursing expenses for director education in 2011 (up from 11% in 2010), the actual prevalence of this benefit may be underreported.




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