Corporate directors might be getting more cash now than they did a year ago, but it’s a modest increase given the expansion of boards’ responsibilities, according to a recent analysis by consulting firm Towers Watson & Co.
Last year, the median pay for outside directors at the 500 largest U.S. companies was $227,000, up 3 percent from $220,000 in 2011. While directors usually receive a mix of equity, cash and fees for attending meetings, the increase was driven by growth in cash compensation, according to Doug Friske, global head of executive compensation consulting at Towers Watson, which analyzed proxies through June 30.
“Cash retainers are playing a larger role in the compensation mix for outside directors as the majority of companies have now eliminated meeting fees, reflecting the evolution of director roles to 24/7 commitments,” Friske said in a statement. “While director pay increases in the early years of this decade were primarily driven by rising equity values, last year’s increase was fueled by growth in cash compensation.”
Cash retainers for directors grew 7 percent at the median to a high of $80,000. Total cash compensation grew to $100,000. Stock awards didn’t increase at the median last year.
Federal regulations have also impacted director pay: Since the Sarbanes-Oxley Act of 2002, audit committees have typically had the highest-paid directors due to their increased responsibilities and greater time commitment. The Dodd-Frank Act has also led to more meetings with shareholders, and thus, bigger commitments from compensation committee directors.
“Directors on the compensation committee also saw a jump in pay last year as the 2010 Dodd-Frank Act and its required ‘say-on-pay’ votes have led to more disclosures and meetings with shareholders,” The Wall Street Journal’s Emily Chasan noted in a blog post.
While retainers are rising, companies are shifting away from paying board members for attending meetings. In fact, just over a quarter (28 percent) of companies paid meeting fees to directors, down from 32 percent in 2011.
“The demand for experienced, talented directors to serve on boards remains strong and will likely grow as companies address the retirement of long-standing members and pursue greater member diversity,” Friske added. “As a result, we expect companies will continue to evaluate their overall director compensation programs and policies to ensure they are able to attract the best directors to their boards.”