Guidelines For Independent Director Compensation

We consider independent director board seats to require serious outside work and time commitment in addition to the actual board meetings. To meet all the fiduciary responsibilities of any board, and Sarbanes-Oxley, independent directors must invest significant time staying up to speed on the business. Mr. Norton will not be on more than four boards at any one time and is currently seeking an additional board seat as an independent director at an exciting company where he can add value.  His specialty is helping companies "shift gears" to the next level of their growth and development where he can help optimize the business and vision by providing a different perspective than anyone else on the board today. 

The following shows today's averages for independent director compensation and is offered as a guideline for the compensation expected for such services. Each situation will obviously be different. More equity upside and less cash for early-stage, higher risk companies, and more cash and less equity for more established companies.

See Independent Director Services Description and
Commentary on Sarbane-Oxley

Today taking an independent director board seat brings significant liability and independent directors must allocate a significant amount of time to each board they sit on beside just meetings. As a rule of thumb they should at least double, and sometimes triple, the time spent in board and committee meetings to do a good job.  As a result independent directors compensation is increasing. Here are some guidelines for average compensation of outside board members:

 

Small Company

Revenue > $20MM

Larger or Public Company

Annual Retainer

$12,000

$24,000

$24,000

Per meeting Fee

For actual meeting times plus 100% of that time for calls, other work and helping CEO.

$1,000

Assumes 10 meetings per year.

$2,000

Assumes 6-8 meetings per year.

$4,000

Assumes 6 meetings per year with full day allowed including prep

Committee Meetings

(Includes both meetings and outside work as a result of those meetings assuming equal time.)

$500

$750

$1,000

Unrestricted Stock or options

0.75% per year or 2% with 3 year commitment and grant up front

.2% per year

Negotiable based on actual stock value with 0.1% per year for smaller public companies as a guideline

Approx. Total Cash Remuneration

$22,000

$36,000

$48,000

Plus all travel and other direct expenses.

Intel's Current Director Payment Program:
$24,000 retainer + $4,000 per meeting + all expenses.
Plus 15,000 to 40,000 options. Plus $500 per phone call meeting.
In 2003 went to $60,000 to $80,000 for chairman.

IRRC's analysis of nearly 1,500 companies in the S&P 500, MidCap, and SmallCap indexes shows that 83 percent of the firms now have a majority of independent directors on the board, up from 78 percent last year and 72 percent five years ago.

What's more, the average board is now 69 percent independent, compared with 66 percent last year, and 62 percent five years ago. The increase appears to result from a deliberate change in the composition of boards - 13 percent of this year's directors joined a board for the first time during the last two years, and 80 percent of those new directors are independent from the company where they now serve.

IRRC's landmark study tracks trends in both board practices and board pay at S&P "Super 1500" companies. Despite increased demands on board members "post-Enron," total remuneration for a typical director dropped by 4 percent in 2003 to approximately $102,000. This is the first time in five years this figure declined, triggered by a 22 percent decline in the average value of stock option grants. The value of directors' annual retainers, consisting of cash and unrestricted shares, on the other hand, rose by a healthy 10 percent last year to about $32,000.

Meanwhile, awards of deferred stock, time-lapsing restricted stock, and stock units are on the upswing. The average annualized value of total long-term stock awards increased by 7 percent in 2003, and the prevalence of companies using these types of long-term stock awards rose from 24 percent to 28 percent. A few companies, including American Express, Bank of America, General Electric, J.P. Morgan Chase, KeyCorp, Safeco, Temple-Inland, and Waste Management recently stopped granting options to non-employee directors altogether; each of these companies adopted or boosted long-term stock awards as replacements.

"Increased scrutiny and criticism of stock options for directors has clearly had an impact," notes Alesandra Monaco, Deputy Director of IRRC's Governance Research Service, who led the study. "Companies are using other types of stock-based compensation more, to keep the interests of shareholders and directors aligned." 

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