Towers Perrin Reports an 8% Increase in Director Compensation in the Past Year

STAMFORD, Conn.--(BUSINESS WIRE)--A recent Towers Perrin report on compensation for outside board members found that total remuneration increased to a median level of $174,500 in FY 2006, up 8% from $162,285 in FY 2005. This comprehensive annual review covers the practices of all the publicly traded companies in the Fortune 500 listing.

“The continuing trend toward more disclosure may cause some companies to further refine their director compensation practices in the coming year.”

“Compensation for outside board members continued to grow at a healthy pace, reflecting a tight market for qualified candidates and the significant responsibility and time commitment involved,” said Paula Todd, a Managing Principal of Towers Perrin.

The study identified four other key trends:

Specialized board roles are paid more. The report found that, in line with recent years, particular roles that require additional time and effort, as well as specialized competencies -- such as serving as the board’s chairman or lead director, chairing key board committees or serving on certain time-consuming committees, such as audit committees -- commanded premium levels of compensation. For example, for the companies that had nonexecutive chairs of the board, the median additional pay for these individuals was $125,000. Directors serving as “lead director” (also called “presiding director”) -- a position becoming increasingly common in response to strict corporate governance standards -- received a median additional fee in FY 2006 of $20,000.

Stock options are losing ground to full value shares. Thirty-six percent of companies granted stock options to outside directors in FY 2006, down from 39% in the prior year. Concurrently, the number of companies that grant full-value shares climbed from 77% in FY 2005 to 81% in FY 2006. Overall, 93% of companies granted some form of equity compensation to their outside directors.

Stock ownership guidelines are increasingly prevalent. In FY 2006, 68% of companies studied disclosed the existence of stock ownership guidelines for directors, up from 64% in FY 2005. Companies denominate those guidelines in a variety of ways: 56% use a multiple of compensation (typically board cash retainer); 24% use a fixed number of shares; 18% use an aggregate value of shares, and 2% report they have ownership guidelines, but do not disclose specifics.

New disclosure tables in proxy statements are starting to affect how directors are paid. Having to disclose specific values for perquisites and benefits is causing more companies to rethink those programs. Director-by-director disclosures highlight compensation differences between directors.

“In the five years since Sarbanes-Oxley was enacted, outside corporate directors have come to play increasingly challenging and important roles. So it’s not surprising that their compensation has evolved to reflect the responsibility and risk that accompanies those roles,” said Todd. “The continuing trend toward more disclosure may cause some companies to further refine their director compensation practices in the coming year.”

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management. Through its HR Services business, Towers Perrin provides global human resource consulting that helps organizations effectively manage their investment in people. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. The firm’s other businesses are Reinsurance, which provides reinsurance intermediary services, and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together these businesses have offices and business partner locations in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information about Towers Perrin is available at www.towersperrin.com/hrservices.