September 30, 2009
Director Compensation Survey: Modest Rise During ’08
– Doug Friske, Towers Perrin
Recently, we wrapped up our annual review of total director compensation at Fortune 500 companies. We found that 2008 pay packages rose by a median of just 3% from 2007 rates, a modest increase compared to the median annual pay increases near 10% seen in recent years.
Total remuneration for nonexecutive directors at the companies studied rose to $199,949 in 2008, up from a median value of $193,965 in 2007. While cash compensation rose by a median of 5% (to $83,875, up from $80,000 in 2007), falling stock prices brought down the value of equity awards by a median of 1% overall from 2007 rates. For 2008, median equity values in director pay packages fell to $103,963 from $105,000 the year prior. This decrease in equity pay reverses a trend of rising annual equity award values for directors over the past four years, when values increased at rates between 5% and 13% annually. We expect to see even more of an impact from the economic and market downturn in the data for 2009.
The 3% median increase in total 2008 director remuneration reflects a general salary stability – and in some cases, stagnancy – seen across employees and executives at many companies during the current recession. In fact, more than half of all companies
included in the study made no change to their directors’ compensation package at all in 2008. Further, 17 companies in the 2008 study decreased the value of some element of their director pay programs, from cash compensation to equity grants.
We also also focused on the compensation premium placed on the role of nonexecutive chairmen and lead directors. At the median, a lead director receives $20,000 in additional annual compensation compared to a typical director. Nonexecutive chairmen receive a median of $150,000 in additional total compensation compared to a typical director.