Rising Equity Markets Boosting Director Pay


by FEI Daily Staff

Rising stock values contributed to growth in board members' pay as equity awards play a larger role in outside director compensation.

©archideaphoto/THINKSTOCK

According to a Towers Watson review of director pay levels and practices, median compensation for outside directors rose 4 percent in 2014 to reach $250,000.

This growth was fueled primarily by growth in the equity markets, with median cash compensation remaining flat and more companies reducing cash-per-meeting fees.

Equity Growth

According to the study, equity pay for directors rose 7 percent in 2014 to a median of nearly $140,000 as companies continued to increase a trend of increasing stock grants to external board members.

A third of the companies increased the value of stock grants last year, with a median increase of $12,500.

To reduce potential volatility and value adjustments, 89 percent of companies awarded stock grants based on a fixed amount (rather than a given number of shares), compared with 87 percent a year ago.

Similarly, 87 percent of companies granted a single type of full-value shares, up from 84 percent in 2013.

Only 9 percent of companies include stock options in their director compensation programs, and 3 percent did not grant any stock to directors.

A higher number of companies are also placing limits on the size or value of director stock award. Slightly more than a quarter (27 percent) of Fortune 500 companies that adopted or amended stock plans that include directors as participants in 2015 included fixed-dollar or fixed-number-of-shares caps on equity grants to directors.

Cash Compensation

The cash component of director compensation also increased in 2014, with the median annual cash retainer rising from $80,000 in 2013 to $90,000 last year.

This growth was offset somewhat, however, by declines in per-meeting fees. Only 19 percent of the companies examined offer fees for board meeting attendance, compared with 23 percent; and only 24 percent offer such fees for committee meetings, compared with 28 percent in 2013.

Looking a committee service fees, the study found median cash compensation of $10,000 for the audit and compensation committees, and $8,000 for the governance committee.

The gaps between fees for serving on those committees have narrowed in recent years as growing regulatory complexity has increased directors' responsibility.

Looking at the past five years, audit committee compensation has remained flat at $10,000, while median compensation committee fees have risen 33 percent since 2010, and governance committee fees have increased 29 percent.