Submitted by IRRC
IRRC’s analysis of nearly 1,500 companies in the S&P 500, MidCap, and SmallCap indexes shows that 83 percent of the firms now have a majority of independent directors on the board, up from 78 percent last year and 72 percent five years ago.
What’s more, the average board is now 69 percent independent, compared with 66 percent last year, and 62 percent five years ago. The increase appears to result from a deliberate change in the composition of boards - 13 percent of this year’s directors joined a board for the first time during the last two years, and 80 percent of those new directors are independent from the company where they now serve.
IRRC’s landmark study tracks trends in both board practices and board pay at S&P “Super 1500” companies. Despite increased demands on board members “post-Enron,” total remuneration for a typical director dropped by 4 percent in 2003 to approximately $102,000. This is the first time in five years this figure declined, triggered by a 22 percent decline in the average value of stock option grants. The value of directors’ annual retainers, consisting of cash and unrestricted shares, on the other hand, rose by a healthy 10 percent last year to about $32,000.
Meanwhile, awards of deferred stock, time-lapsing restricted stock, and stock units are on the upswing. The average annualized value of total long-term stock awards increased by 7 percent in 2003, and the prevalence of companies using these types of long-term stock awards rose from 24 percent to 28 percent. A few companies, including American Express, Bank of America, General Electric, J.P. Morgan Chase, KeyCorp, Safeco, Temple-Inland, and Waste Management recently stopped granting options to non-employee directors altogether; each of these companies adopted or boosted long-term stock awards as replacements.
“Increased scrutiny and criticism of stock options for directors has clearly had an impact,” notes Alesandra Monaco, Deputy Director of IRRC’s Governance Research Service, who led the study. “Companies are using other types of stock-based compensation more, to keep the interests of shareholders and directors aligned.”
Other important findings of this year’s Board Structure/Board Pay study include the following:
More than half the companies with a non-employee chairperson pay extra compensation for that service. On average, that fee ($92,389) is more than twice the typical extra amount some companies pay to a lead or presiding director ($38,000).
Attendance is also improving - only 13 percent of companies reported having any directors who missed more than 25 percent of requisite meetings, compared with 21percent in 1999. That’s despite the fact that less than 1 percent of study companies have disclosed that they penalize absentee directors.
About the study:
Board Practices/Board Pay, 2004 Edition, reviews and evaluates the latest board structure and compensation practices of 1,275 U.S. companies, and examines a total of 12,065 directors, making it the most comprehensive comparative tool available. The study is based on disclosures of board structure and compensation amounts reported in proxy statements for S&P 1,500 companies that held annual meetings between January 1 and July 31, 2003. Each company’s practices and compensation packages are summarized, with numerous benchmarks presented for three S&P indexes, 10 revenue bands, and 10 economic sectors.
For more than 30 years, IRRC has been the leading source of high quality, impartial information on corporate governance and social responsibility issues affecting investors and corporations worldwide. Today, IRRC provides research, software products and consulting services to nearly 500 clients including institutional investors, corporations, law firms and other organizations.
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