Download pptx - Trends in Director Compensation (2015)

TRENDS IN DIRECTOR COMPENSATION AND

RELATED GOVERNANCE STUDY

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INTRODUCTION

• Director compensation has not historically been an area of public scrutiny, but this is changing– Negative media coverage on high director pay levels observed

beginning in the 2013 proxy season • Questions regarding amount and value of services actually

provided by directors– Shareholders and shareholder advisory firms have also taken a

greater interest• ISS has begun to assess director compensation on a

relative basis• Emerging governance issues such as tenure and diversity

– Shareholder derivative lawsuits focused on director compensation, particularly the limits on compensation implied in shareholder approved equity plans• Suggests need for “meaningful” limits on director

compensation to preserve protection under the business judgement rule

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INTRODUCTION

• Annual reviews of director compensation becoming more common– Ensures more modest movements to maintain desired

marketplace positioning– May be more important if scrutiny of director pay levels

continues

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• Top 200 – 200 largest US public

companies based on fiscal 2014 revenues

• Revenues– Ranges from $15B - $486B– Median equals $27B

• GICS Sectors– All 10 GICS Sectors

represented

2015 DIRECTOR COMPENSATION STUDYSTUDY SAMPLE

$15B - $17.5B17%

$17.5B - $25B29%

$25B - $50B27%

$50B - $100B16%

$100B -$486B11%

Revenues

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2015 DIRECTOR COMPENSATION STUDYMETHODOLOGY

Straw Director Description of Roles

Audit Committee Chair •Chair of audit •Member of one other committee

Compensation Committee Chair •Chair of compensation•Member of one other committee

Nominating/Governance Committee Chair •Chair of nominating/governance•Member of one other committee

Non-Chair •Member of two committees•Chair of none

Average Director •Chair of one committee•Member of one other committee

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2015 DIRECTOR COMPENSATION STUDYTOTAL COMPENSATION – AVERAGE DIRECTOR

2009$232,083

2010$240,417

2011$250,000

2012$261,333

2013$268,333

2014$276,667

$200,000

$225,000

$250,000

$275,000

$300,000

Changes in Average Director Median Total Compensation Values, 2009 - 2014

+3.1% vs. '13+19.2% vs. '09

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2015 DIRECTOR COMPENSATION STUDYTOTAL COMPENSATION – BY POSITION

(+3.1% vs. '13)(+19.2% vs. '09)

Average Director

Audit Chair Compensation Chair

Nominating/Governance

Chair

Non-Chair $200,000

$225,000

$250,000

$275,000

$300,000

2009$232,083

2009$236,250 2009

$231,250 2009

$230,000

2009$220,000

2014$276,667

2014$280,000 2014

$276,500 2014$272,250

2014$260,000

Changes in Median Total Compensation Values, 2009 - 2014

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2015 DIRECTOR COMPENSATION STUDYTOTAL COMPENSATION – BY REVENUE• Director compensation continues to be correlated to revenue size

of the company– Smaller companies pay less overall than their larger

counterparts– Compensation increases have been greatest among the

smaller companies over the last five years• +24% for companies with revenues < $17.5 billion• +13% for companies with revenues > $100 billion

2009 20092009

2009 20092014 20142014

20142014

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

< $17.5B $17.5B - $25B $25B - $50B $50B - $100B > $100B

Median Compensation - Average DirectorBy Revenue Range

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2015 DIRECTOR COMPENSATION STUDYTOTAL COMPENSATION – GICS SECTOR• Utility, information technology and consumer discretionary

companies experienced the greatest increases over the past five years, with growth rates of +26%, +25% and +23% respectively

2009

2009

2009

2009 20092009

2009

2009

2009

2009

20142014

2014

20142014

2014

2014

20142014

2014

$195,000

$220,000

$245,000

$270,000

$295,000

$320,000

Median Compensation - Average DirectorBy GICS Sector

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• Equity continues to increase as a percent of total director pay• Over half of total compensation in the form of equity

– Consistent with best practices

2015 DIRECTOR COMPENSATION STUDY PAY MIX

2009

2014

Cash48%

Cash43%

Equity52%

Equity57%

Average Director Pay Mix, Cash vs. Equity2009 - 2014

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• Median cash retainer for board service equals $100,000 in 2014 – +11% increase over 2013– +33% increase over 2009– Increases in annual cash retainers have outpaced those

observed in total compensation due largely to the elimination of meeting fee payments

• 99% prevalence among Top 200

2015 DIRECTOR COMPENSATION STUDY CASH RETAINER

$75,000

$75,000

$80,000

$85,000

$90,000

$100,000

$70,000 $75,000 $80,000 $85,000 $90,000 $95,000 $100,000 $105,000

2009

2010

2011

2012

2013

2014

Median Cash Retainer Values2009 - 2014

Yrs Growth

1 +11%

2 +18%

3 +25%

4 +33%

5 +33%

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• Median equity retainer value equals $150,000 in 2014– +7% increase over 2013 – +25% increase over 2009– 50% greater than the board cash retainer

• 97% prevalence among Top 200

2015 DIRECTOR COMPENSATION STUDY EQUITY RETAINER

$120,000

$125,000

$130,000

$140,000

$140,000

$150,000

$115,000 $120,000 $125,000 $130,000 $135,000 $140,000 $145,000 $150,000 $155,000

2009

2010

2011

2012

2013

2014

Median Equity Retainer Values2009 - 2014

Yrs Growth

1 +7%

2 +7%

3 +15%

4 +20%

5 +25%

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• Stock options continue to decline in prevalence • Full value awards have become nearly universal• Equity awards predominately denominated in dollars as opposed to

shares

2015 DIRECTOR COMPENSATION STUDY EQUITY RETAINER – GRANT PRACTICES

73%

81%

84%

88%

91%

92%

20%

14%

12%

9%

5%

6%

7%

5%

4%

3%

4%

2%

2009

2010

2011

2012

2013

2014

Equity Grant Practices2009 - 2014

Full Value Awards Only Both Options Only

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• Over 80% of 2014 equity awards vest either immediately or within one year of grant

• Continue to observe a notable and consistent minority of companies that grant equity awards with multi-year ratable vesting

2015 DIRECTOR COMPENSATION STUDY EQUITY RETAINER – VESTING

48%

46%

29%

36%

23%

18%

2009

2014

Equity Vesting Schedule Prevalence, 2009 - 2014

Immediate One-Year Multi-Year

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2015 DIRECTOR COMPENSATION STUDY BOARD MEETING FEES

2012

• Board meeting fees continue to decline in prevalence– 15% of Top 200 pay fees for each meeting– 6% pay fees for meetings held in excess of a predetermined

number of meetings• Median meeting fee equals $2,000

No Meeting Fees79%

Excess Mtgs. Only

6%

All Meetings

15%

2014

2009 2010 2011 2012 2013 2014

Mtg. Fee $2,000 $2,000 $2,000 $2,000 $2,000 $2,000

Prevalence 36% 32% 31% 27% 24% 21%

20%

25%

30%

35%

40%

45%

$0

$500

$1,000

$1,500

$2,000

$2,500

Board Meeting Fees, Median Values and Prevalence2009 - 2014

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2015 DIRECTOR COMPENSATION STUDY COMMITTEE MEETING FEES

2012

• Committee meeting fees are slightly more prevalent than board meeting fees

20%

30%

40%

50%

$0

$1,000

$2,000

$3,000

2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014

Audit Compensation Nom/Gov

Committee Meeting Fees, Median Values and Prevalence2009 - 2014

Prevalence

77%

77%

78%

18%

18%

17%

5%

5%

5%

Audit

Compensation

Nom/Gov

2014 Committee Meeting Fee Prevalence

No Meeting Fees All Meetings Excess Mtgs. Only

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2015 DIRECTOR COMPENSATION STUDYCOMMITTEE CHAIR FEES

Retainer Only71.6%

Both21.8%

Meeting Fees Only0.5%

None6.1%

Nom/Gov

Retainer Only73.4%

Both22.6%


None3.5%

Compensation

Retainer Only74.5%

Both22.5%


None2.5%

Audit

$25,000

$20,000

$15,000


2014 Median Committee Chair Additional Fees

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2015 DIRECTOR COMPENSATION STUDY COMMITTEE MEMBER FEES

Retainer Only35%

Both6%

Meeting Fees Only17%

None42%

Audit

Retainer Only21%

Both3%


None57%

Nom/Gov

Retainer Only23%

Both4%


None54%

Compensation

$14,900

$10,000 $9,000


2014 Median Committee Member Additional Fees

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2015 DIRECTOR COMPENSATION STUDYCHAIR OF THE BOARD• 25% of boards in the Top 200 are led by a non-executive

chairperson• 94% of non-executive chairs receive additional compensation for

the role in 2014

CEO & COB63%

Employee COB12%

Non-Exec COB25%

Top 200 COB Prevelance

Cash Only43%

Cash & Equity41%

No Retainer6%

Equity Only10%

Non-Exec COB Retainer

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2015 DIRECTOR COMPENSATION STUDYCHAIR OF THE BOARD• Median additional compensation for non-executive chairs equals

$200,000– No change since 2011– Equals 73% of total compensation for the average director

2009 2010 2011 2012 2013 2014

COB Add'l Pay $167,500 $179,750 $200,000 $200,000 $200,000 $200,000As % of Avg.

Director Total Comp. 71% 75% 81% 78% 76% 73%

55%

65%

75%

85%

$150,000

$175,000

$200,000

Non-Executive Chairperson Premium Median Values and As % of Average Director Total Compensation

2009 - 2014

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2015 DIRECTOR COMPENSATION STUDYLEAD DIRECTOR• A majority of the Top 200 (73%) have an annually-elected

lead/presiding director• 85% of lead/presiding directors receive additional compensation

for the role in 2014

Lead Director

60%

None24%

Rotating / Assigned

3%Presiding Director

13%

Lead / Presiding Prevelance

Cash Only78%

No Retainer15%

Cash & Equity

4%

Equity Only3%

Lead / Presiding Retainer

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2015 DIRECTOR COMPENSATION STUDYLEAD DIRECTOR• Median additional compensation for lead/presiding directors

equals $27,500– Increased +$2,500 over 2013 level– Equals 10% of total compensation for the average director

2009 2010 2011 2012 2013 2014

Lead Add'l Pay $25,000 $25,000 $25,000 $25,000 $25,000 $27,500As % of Avg.

Director Total Comp. 11% 10% 10% 9% 9% 10%

0%

5%

10%

15%

$15,000

$20,000

$25,000

$30,000

Lead and Presiding Director Premium Median Values and As % of Average Director Total Compensation

2009 - 2014

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• Ownership guidelines for directors continue to increase in prevalence for companies in the Top 200

• Only 6% of the Top 200 do not disclose a share ownership guideline for directors

2015 DIRECTOR COMPENSATION STUDY SHARE OWNERSHIP GUIDELINES

83%

87%

89%

91%

90%

94%

17%

13%

11%

9%

10%

6%

2009

2010

2011

2012

2013

2014

Prevalence of Share Ownership and Retention Guidelines2009 - 2014

Guideline No Guideline

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• Majority of ownership guidelines stipulated as a multiple of the annual board cash retainer (68% of companies)– 5x cash retainer is most

common requirement• Value of guidelines ranges

from $100,000 to $2,077,000– Median equals

$500,000

2015 DIRECTOR COMPENSATION STUDY SHARE OWNERSHIP GUIDELINES

Multiple of Cash Retainer

68%

Multiple of Equity

Retainer5%

Multiple of Cash & Equity

Retainers3%

Multiple of Total Remun.

1%# of Shares9%

Retention Value7%

Retention %7%

2014 Share Ownership and Retention Guideline Definitions

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• Total board cost reflects the sum of all four fee components– Cash, equity, pension value changes and all other compensation

amounts• Among the Top 200 in 2014

– The number of paid directors ranges from one to 17 • Median equals eleven

– Total board cost ranges from $43,900 to $6.1 million • Median equals $2.9 million

– +5% over 2013 levels

2015 DIRECTOR COMPENSATION STUDY TOTAL BOARD COST

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

0 2 4 6 8 10 12 14 16 18

Total Board Cost versus Number of Paid Directors

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2015 DIRECTOR COMPENSATION STUDY TOTAL BOARD COST

$2,927,550

$2,710,571$2,820,288

$2,941,158

$3,104,661$3,003,888

$2,500,000

$2,750,000

$3,000,000

$3,250,000

$3,500,000

Top 200 < $17.5B $17.5B - $25B $25B - $50B $50B - $100B > $100B

Median Total Board Cost by Revenue

$2,927,550

$2,686,133

$2,984,720 $3,025,547

$3,451,543

$2,886,526$3,026,300

$2,819,292 $2,784,613

$3,246,656

$3,116,653

$2,500,000

$2,750,000

$3,000,000

$3,250,000

$3,500,000

Top 200 ConsumerDiscretionary

ConsumerStaples

Energy Financials Health Care Industrials InformationTechnology

Materials Telecomm.Services

Utilities

Median Total Board Cost by GICS Sector

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• What to expect for 2015:– Modest increases (+3-5%) in director compensation levels– Increased scrutiny on director compensation levels from

• Media• Shareholder advisory firms

– Increase in share ownership guideline prevalence and guideline value

– Continued decline in meeting fee prevalence– Increased scrutiny on total pay levels and year over year

changes– Continued focus on board-related governance issues

2015 DIRECTOR COMPENSATION STUDY OUR VIEW

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If you would like a copy of our upcoming 2015 Director Compensation Study or have any questions regarding this presentation please contact Nora or Steven.

Nora [email protected]

Steven Hall [email protected]

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