More New Independent Directors Added to S&P 500 Boards, but Turnover Remains Slow

S&P 500 boards elected 376 new independent directors — or .78 new directors per board — during the 2015 proxy year, making it the largest recruitment class since 2008, when 380 independent directors were added, according to the 2015 Spencer Stuart Board Index.

Despite the increase in the number of new directors, board turnover remains low, averaging about 7 percent annually.

The new class of independent directors includes more active executives, executives with financial backgrounds and somewhat more women than in 2014.

  • More than half, 53 percent, are employed senior executives and professionals, compared with 47 percent last year.
  • About one-quarter of new directors, 24 percent, are active or retired executives with banking, finance, investment or accounting credentials.
  • Women represented 31 percent of new directors in 2015, up one percentage point from 2014.
  • Twenty percent of new independent directors are active CEOs, chairs, COOs, presidents and vice chairs, compared with 22 percent in 2014, 26 percent in 2010 and 32 percent in 2005.
  • Fifty-seven percent of S&P 500 CEOs today have no outside boards.
  • Twenty-six percent of independent directors appointed to boards during the 2015 proxy year are serving on a public board for the first time, a decrease from 39 percent in 2014.

While the number of new independent directors has increased in recent years, S&P 500 boards replace only about 7 percent of their members annually, keeping board tenure stable. The average tenure of S&P 500 boards is 8.5 years, largely unchanged for the past five years. The majority of boards, 62 percent, have an average tenure between six and 10 years.

Lack of director term limits and high mandatory retirement ages contribute to the low turnover.  Only 13 S&P 500 boards, 3 percent, set an explicit term limit for non-executive directors. Seventy-three percent of boards have a mandatory retirement age for directors. Of those, nearly all, 94 percent, set the retirement age at 72 or older.

Spencer Stuart researches its annual Board Index report by conducting analysis of all proxies from S&P 500 companies and conducting a separate survey, which received 85 responses in the second quarter of 2015.

Sixty-nine percent of survey respondents said their board has a strategy to promote regular board refreshment. When we asked a similar question in 2014, 41 percent reported having a long-term strategy for encouraging board turnover.

“Boards are doing a better job of identifying the skills they need around the table based on the strategic direction of the business and thinking about board composition over longer time frames,” said Julie Hembrock Daum, who leads Spencer Stuart’s North American Board Practice. “However, meaningful changes in the composition of S&P 500 boards will be slow in coming, given the current pace of director turnover.”

Spencer Stuart will release the full SSBI report by mid-November in both online and print formats. Other highlights from the 2015 study include the following:

Female representation. Women now represent 20 percent of all S&P 500 directors, compared with 16 percent five years ago yet are underrepresented in leadership roles. Only 16 percent of nominating committees are chaired by a female director, 13 percent of audit committees and 10 percent of compensation committees.

Chair/CEO Separation. Nearly half (48 percent) of S&P 500 companies split the chair and CEO role compared to 40 percent in 2010 and 29 percent in 2005. Twenty-nine percent of those who serve in the chair role are deemed “truly” independent by having met the NYSE or NASDAQ rules for independence.

Director Compensation. Average pay for directors across all industries was $277,237, a 5 percent increase from $263,748 in 2014.  A total of 54 percent of annual compensation was in the form of stock awards by comparison to 53 percent in 2014.


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