NACD Survey Shows Board Pay Rising with Improved Market Performance

Increased Use of Equity Ties More Director Pay Packages to Growth in Shareholder Value

Mar 10, 2011, 12:19 ET from NACD

NEW YORK, March 10, 2011 /PRNewswire/ -- Total pay for non-employee directors grew for the first time since 2008, as the value of board equity awards rose in line with improved stock performance, according to the 2010-2011 NACD Director Compensation Report.  In contrast, the cash portion of 2010 director pay packages—annual retainers and board meeting fees—was relatively unchanged.

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The annual 2010-2011 NACD Director Compensation Report, compiled by the National Association of Corporate Directors (NACD) in collaboration with compensation consultancy Pearl Meyer & Partners, examined programs at 1,400 companies with revenues from $50 million to more than $10 billion based on a review of public proxy filings and financial statements.

The report found that 2010 board pay levels generally tracked corporate performance, with the sizeable portion of director pay that is provided in equity rising in response to the market recovery. Total growth in board compensation ranged from a 5% increase at the very largest U.S. companies to a 20% jump at the smallest firms studied. The latter revenue group generally uses more fixed-share equity grants, which tend to result in bigger increases in value during strong market performance than fixed-value grants.

"Providing at least half of director pay value in the form of equity, which is one of NACD's recommended best practices, is intended to focus directors on long-term corporate performance and better align their interests and rewards with shareholders," said Ken Daly, president and CEO of NACD.  "The new report found more than 50% of board pay value is now equity-based among companies of all sizes, except those with revenues under $50 million, where 44% of pay is provided in stock."

The 2010-2011 NACD Director Compensation Report includes an analysis of trends in director pay during the past seven years, noting the fluctuation in compensation levels in response to market performance and regulatory changes.

"The increase in 2010 director compensation echoes trends during previous economic rebounds and follows several years of flat or modest pay levels," noted David Swinford, president and CEO of Pearl Meyer & Partners. "Coupled with increased demands in the current regulatory and governance environment, more companies will be prompted to review their director pay programs over the next year. As a result, similar levels of growth in board pay are very possible over the short term."

NACD has studied director compensation issues extensively, and its cornerstone publication on compensation is the Report of the NACD Blue Ribbon Commission on Director Compensation: Purpose, Principles, and Best Practices, which is used by boards each year in conjunction with the annual 2010-2011 NACD Director Compensation Report to help guide good governance and best practices relative to board pay.  NACD has also developed best practices and an assessment questionnaire for the compensation committee, and other tools to help guide board compensation structures.

"Director compensation has two purposes: to align the interests of shareholders and directors, and to provide value to directors for value received," added Daly. "Director compensation should be determined by the board and disclosed completely to shareholders. The complexity and work of serving as a director—along with the risks involved—have grown. We see in this latest report that companies are aware of that and are changing compensation accordingly."

While specific duties of directors can vary by board, the basic responsibility of the directors is to act as fiduciaries on behalf of the shareholders. Directors not only oversee corporate strategy and performance and select and evaluate the management team, but also act as advisors, problem solvers, and decision makers. The time commitment for directors has virtually doubled over the past several years as a result of increased regulations on both a state and federal level and more complexity in business as a whole.  

The  2010-2011 NACD Director Compensation Report, produced in collaboration with Pearl Meyer & Partners, provides a comprehensive perspective on director pay practices across a wide range of industries and company sizes. The study provides data on micro, small, medium, large and top 200 companies for the following areas:  

  • Director compensation by industry
  • Director compensation by geographic region
  • Equity grant practices
  • Premium pay for board leadership positions
  • Stock ownership guidelines
  • Perquisites and benefits
  • Board composition and structure

To learn more about or purchase either the 2010-2011 NACD Director Compensation Report or the Report of the NACD Blue Ribbon Commission on Director Compensation, please go to www.nacdonline.org or call 202-775-0509. NACD members can download a complimentary copy of the 2010-2011 NACD Director Compensation Report.

About NACD

The National Association of Corporate Directors (NACD) is the only membership organization delivering the information and insights that corporate board members need to confidently confront complex business challenges and enhance shareowner value. With 11,000 members, NACD advances exemplary board leadership. NACD is focused on creating more effective and efficient boards through director-led education and peer forums to share ideas and leading practices based on more than 30 years of primary research. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership. To learn more about NACD, visit NACDonline.org. To join, please contact Kelly Dodd at kkdodd@nacdonline.org or 202-380-1891.

About Pearl Meyer & Partners

For more than 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to not-for-profits as well as emerging high-growth companies. These organizations rely on Pearl Meyer & Partners to develop programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose.

SOURCE NACD



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