Compensation for Corporate Directors Rises Modestly in 2008

STAMFORD, CT., September 16, 2009 — With the country's economy still battling to pull out of a recession, directors on the boards of America's largest companies in 2008 realized modest changes in their annual compensation packages.  According to an annual review by Towers Perrin of total director compensation at Fortune 500 companies, 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.

"By 2008, corporate directors were keenly aware of the economic challenges that lay ahead and adjusted their compensation packages accordingly," said John England, Towers Perrin Managing Principal and a leader of the firm's Executive Compensation practice globally. "Though overall compensation for directors did increase year over year, it did so at a much slower pace than seen in years past — reflective of the impact of the current challenging economy and in line with other pay actions taken by companies to rein in expenses during the recession.  We expect to see even more of an impact from the economic and market downturn in the data for 2009."

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.

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.

"As stewards of the corporation, directors are compensated for their guidance and expertise — not their performance on any specific task," said England."Given the consistency of this role year to year, a stable compensation model like the one currently in place is appropriate."

The Towers Perrin analysis 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.

"Future trends in this area will be of particular interest as government and oversight organizations continue to push for the separation of chairman and chief executive roles in America’s corporations," said England. "As nonexecutive chairmen become more common, competition for their services and the corresponding premium paid for their expertise is likely to rise from the levels seen today."

Methodology

Towers Perrin analyzed the compensation for outside directors at 461 publicly owned Fortune 500 companies that filed their fiscal-year 2008 proxy by June 30, 2009.  Data for these companies were then compared against the results obtained by the analysis of 462 Fortune 500 companies, as reported by Towers Perrin in 2008.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management.  The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting.  Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East.  More information about Towers Perrin is available at www.towersperrin.com.