Annual pay for outside directors reached the
quarter-million-dollar mark for first time in study's history
ARLINGTON, Va.--(BUSINESS WIRE)--Aug. 27, 2015--
Total pay for outside directors at the nation’s largest corporations
increased by 4% in 2014, primarily driven by rising stock values,
according to a new analysis by global professional services company
Towers Watson (NASDAQ: TW). The study found that median annual total pay
for outside directors reached the quarter-million-dollar mark for the
first time in the history of the study, although cash compensation
remained flat. Additionally, two out of five companies made a change to
one or more core elements of their director pay program.
According to Towers
Watson’s annual analysis of director compensation at Fortune
500 companies, median total direct compensation for directors climbed 4%
last year, to $250,000, an increase from nearly $240,000 in 2013. Total
compensation includes cash pay, and annual or recurring stock awards.
The median value of cash compensation remained flat in 2014 at $100,000
for the second year in a row, while stock compensation value rose 7% at
the median, to almost $140,000, nearly double the 4% increase in 2013.
The average mix of pay remained constant at 56% in equity and 44% in
cash.
“For the second consecutive year, rising stock values were the driving
force behind moderately larger increases in total pay for outside
directors,” said Paul Conley, U.S. West division leader for Executive
Compensation at Towers Watson. “While many companies boosted the annual
cash retainer for board service, total cash compensation remained flat,
as fewer companies are paying directors on a per-meeting basis, a sign
that companies continue to simplify their director pay programs. In
short, companies are paying for directors’ overall contributions as
opposed to paying for the time they devote to the role.”
The annual cash retainer for board service increased significantly (13%)
in 2014, rising from $80,000 to $90,000 at the median. This marks the
largest annual increase since before the financial crisis of 2009. Over
one-quarter of companies (26%) increased their board retainer, up from
21% of companies in 2013. The number of companies that provides an
annual board retainer as the sole form of cash compensation has steadily
increased over the last few years, rising from 28% in 2010 to 37% last
year.
“Moderate annual increases in director compensation have become the
norm. They afford companies more control over compensation. As demands
and pressures on directors continue to rise, particularly through
committee work and ongoing regulatory changes, we expect companies will
continue to evaluate their director compensation programs in order to
attract and retain the most qualified directors and ensure ongoing
competitiveness,” said Conley.
Among other survey findings:
-
Companies continue to embrace stock ownership guidelines and retention
requirements for directors. Ninety-one percent of companies now have
one or both mandates in place. Nearly four out of five (79%) ownership
guidelines are based on a multiple of the annual retainer, with the
median multiple remaining at five times the annual retainer for the
fifth year in a row.
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Companies continue to impose caps on directors’ potential stock grants
in response to recent court rulings. More than a quarter (27%) of
companies that adopted or amended stock plans (that include directors
as participants) in the 2015 proxy season included an annual award
limit specific to nonemployee directors.
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Incremental pay for board leaders remained flat at the median compared
with the prior year. The total compensation premium received by a lead
or presiding director relative to that of a typical director remained
the same at 11% this year, while the pay growth among all directors
has led to a drop in the nonexecutive board chair premium over the
typical director, from 70% to 64% this year.
About the Analysis
Towers Watson analyzed the compensation for outside directors at 470
publicly owned Fortune 500 companies that filed their fiscal year
2014 proxy statements by June 30, 2015. Data for these companies were
then compared against the results of an analysis of 474 Fortune
500 companies for 2013.
About Towers Watson
Towers Watson (NASDAQ: TW) is a leading global professional services
company that helps organizations improve performance through effective
people, risk and financial management. The company offers solutions in
the areas of benefits, talent management, rewards, and risk and capital
management. Towers Watson has 16,000 associates around the world and is
located on the web at towerswatson.com.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150827005156/en/
Source: Towers Watson
Towers Watson
Ed Emerman, +1 609-275-5162
eemerman@eaglepr.com