Independent directors' pay soars as work increases

Pay for independent directors has risen sharply as corporate gover­nance reforms force US compa­nies to hold longer and more fre­quent board meetings. In a sign of the growing burden felt by corporate America, analy­sis of 2004 compensation data shows average remuneration for so-called "non-employee" direc­tors at the top 200 US companies rose 13.4 per cent to $177,000 (£97,000). Fees paid for attending committee meetings jumped by more than a third.

This rise follows three years of stagnant pay and a long tradition of treating compensation for external directors as a nominal fee not intended as a main source of income for the high-powered individuals who normally fill such posts.
But pressure on directors to act as guardians against everything from auditing scandals to exces­sive pay awards is leading to a new spirit of professionalism, more work and higher risks.

Edward Archer, managing director of Pearl Meyer & Part­ners, the New York compensa­tion consultant that carried out the analysis, said: "It is like haz­ardous duty pay. They are wor­ried about the risk to their repu­tations as well as legal liability from the fact that they have to put their name on the dotted line."
Pearl Meyer says most compa­nies now choose to issue shares to directors plus fixed annual retainers because of criticism of past reliance on variable atten­dance fees, share options and other perks such as pensions. For some companies, share awards now make up the bulk of director compensation. At Gold­man Sachs, for example, new arrangements mean directors are offered restricted stock worth $280,000 a year plus a retainer of up to $100,000.

Yet these fees are dwarfed by executive pay levels and the insurance cover required to give directors legal protection. Gen­eral Electric, for example, pays $250,000 to its 12 independent directors but spends $25.2m on directors' and officers' insurance.

Mr Archer at Pearl Meyer said the level of expertise on boards such as these meant they were still relatively underpaid.

But as the hours get longer, directors are able to join fewer boards. In 2001, Pearl Meyer esti­mates directors put in an average of 150 hours a year, including 60 hours of meetings. Today, it is closer to 200 to 250 hours with 80 or 90 hours of meetings.

"Compensation committee meetings used to be 45 minutes to an hour and a half on average. Now they are more like 2V2 hours and the notebook that goes out beforehand is 50 pages thick," said Mr Archer.

"When they ask who is going to chair the audit committee, everyone bends down pretending to tie their shoes," Mr Archer said. "Who wants to do a job like that for another $10,000 a year?"