Trends in Director Compensation
This week, it was reported that directors at Ford Motor Company received a pay increase of twenty-five percent. In its most profitable year since 1998, the company reported a net income of over $20 billion in 2011, and an increase in director compensation from $200,000 to $250,000. Sixty percent of the compensation package, $150,000, is awarded in the form of common stock. In 2009, the cash component of director compensation packages was entirely eliminated while the company staged a recovery from the recession.
According to results from the latest 2011-2012 NACD Director Compensation Report, Ford is an anomaly. Gleaning the public filings from 1,400 companies, the survey found that director compensation increased by six to eight percent at most companies. At the Top 200 companies, however, compensation remained fairly stagnant—increasing by just more than 1%. However, as noted in Ford’s report filed with the SEC, the company is compensating its directors for performance. In addition to a profitable 2011, company shares gained fourteen percent in the last year. Furthermore, Ford is compensating its directors comparably. Survey results found that Top 200 company directors are paid well over $200,000 per year on average. According to company spokesperson Todd Nissen, “we review all the compensation levels on a regular basis, and in the case of the board, determined this was needed to ensure we continue to attract and retain the talent we have.”
On the list of boardroom priorities, director compensation often takes a back seat to areas more directly related to corporate oversight. Year after year, respondents to our annual governance surveys consistently rank strategic planning and oversight, corporate performance and valuation, and risk and crisis oversight as their top three priorities—with director compensation at the bottom of the list. However, as companies begin to file their proxy statements with the Securities and Exchange Commission (SEC) in advance of annual shareholder meetings, director compensation often receives a spotlight in the news cycle.
This proxy season, in addition to the focus on executive compensation, boards should be aware of the discussion of “say on director pay.” Although not required, in 2011 three large companies received shareholder proposals for an advisory vote on director compensation: Chesapeake Energy, Wells Fargo, and US Bank. In 2012, a similar resolution was filed at Apple.
Boards can use the Director Compensation Report, which breaks down compensation packages by company size (based on annual revenues) to benchmark their practices against peer groups. Free to download for NACD members, it is available at our bookstore.