Annual Survey Shows Boards Increasing Clawbacks and Risk Oversight

Oct 18, 2010, 10:00 ET from The Conference Board

NEW YORK, Oct. 18 /PRNewswire/ -- Boards are increasingly adopting clawback provisions, and the largest corporations now elect directors predominantly via majority voting, according to a report released today by The Conference Board (http://www.conference-board.org/), the global business research and membership organization.

The 2010 U.S. Directors' Compensation and Board Practices Report is based on a survey of 279 corporate secretaries in May and June 2010. The Conference Board conducted this edition of its annual survey in collaboration with the Society of Corporate Secretaries and Governance Professionals and sponsored by the Deloitte LLP Center for Corporate Governance, and expanded the questions to include board practices regarding risk oversight, CEO succession planning, and emerging executive compensation safeguards such as clawbacks, say-on-pay, and anti-gross-up policies.

"Over the last decade, our annual study has documented a steady transformation in the role of public companies' boards, underscoring the increasing importance of directors' monitoring responsibilities and the growing influence of shareholders," said Matteo Tonello, Director of Corporate Governance Research at The Conference Board and an author of the report. "The new developments of the last few months alone, from the SEC regulation on disclosure enhancement to the governance provisions of the Dodd-Frank Act, illustrate the importance of capturing the practices we have added to our annual survey."

The survey analysis groups companies by sector (manufacturing, financial services, and other/non-financial services) and by size (revenue and, new this year, asset value).

"Financial service companies typically use benchmarking based on asset value, so we added this data set to further serve The Conference Board member companies," said Judit Torok, Senior Research Analyst at The Conference Board and the report's co-author.

Major findings include:

Director compensation correlates more with company size than with industry. Median total compensation to board members ranges from $67,500 in the smallest companies to $172,966 in the largest. The range narrows when you look across industries: Non-financial companies pay a median total compensation of $129,415 per director, compared to $149,000 and $150,000, respectively, paid by companies in financial services and manufacturing. "This finding underscores a likely correlation between the rising director compensation levels we've seen over the last few years and the expanding array of governance and compliance responsibilities expected of boards," said Matteo Tonello.

Boards draw on multiple professional backgrounds, with large financial services boards the least diversified. Board composition varies greatly across industries and revenue groups, and encompasses CEOs and other C-Suite executives, bankers and investment professionals, accountants and auditors, lawyers and academics. The boards of financial services companies showed the largest relative proportion of board members who are CEOs, presidents, or board chairs of for-profit companies.

The largest companies (by revenue) predominantly elect directors via majority voting. Among non-financial-services companies, 44.2 percent retain a pure plurality model, compared to 38.3 percent and 37 percent, respectively, in manufacturing and financial services. More than three-quarters of companies in the largest revenue group utilize some form of majority voting, and 95.1 percent of those supplement with a mandatory resignation policy.

Anti-takeover practices remain common, except poison pills. Across industries and revenue groups, the majority of companies say they don't rely on poison pills or "fiduciary out" provisions. However, other anti-takeover practices remain widespread. For example, only a minority of financial-services companies grant shareholders a right to call special meetings, while most companies in manufacturing and financial services prohibit shareholder action by written consent.

Large companies in particular utilize clawback provisions, while say-on-pay appears to be gaining traction only in financial services. At least 40 percent of companies in the manufacturing and non-financial services industries have adopted clawback provisions, as have 36.6 percent of financial firms, with the largest companies in both sectors more inclined to use them.

Boards increasingly focus on risk oversight. Virtually all financial companies with asset value equal to $10 billion or more have a dedicated chief risk officer, who in most cases reports directly to the CEO. Half of surveyed companies in non-financial services and 46.2 percent of manufacturing companies have instituted an ERM committee at management level.

Companies still resist disclosing succession planning details to shareholders. Approximately 40 percent of the financial-services companies surveyed include succession-planning information in their annual disclosure documents; that drops to 14.7 percent and 18.3 percent in manufacturing and non-financial services, respectively.

For more information or to purchase this report, visit http://www.conference-board.org/publications/.

Source:

The 2010 U.S. Directors' Compensation and Board Practices Report

Report #1467-10-RR

The Conference Board

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

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