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ADVANCING EXEMPLARY BOARD LEADERSHIP
Board Preview: What's Next for Director Compensation Compensation Series
January 29, 2015
2
Meet The Presenters
Brett Herand, is Vice President in the Chicago office of Pearl Meyer
& Partners, where he works with boards and management on
executive-compensation.
Richard Goeglein (moderator), is a Director at Pinnacle
Entertainment, Inc., and a member of its compliance and
compensation committees.
Jan Koors, Managing Director of Pearl Meyer & Partners and
head of the firm's Chicago office.
3
Click the buttons below to access additional resources
Housekeeping
4
Housekeeping
Click below for a copy of the slides.
Slides are also available at:
www.pearlmeyer.com/whatsnextfordirectorcompensation
5
You will automatically receive 1 NACD skill-specific
credit for your participation.
Credit may be applied to NACD Fellowship
programs. Contact [email protected]
for more details.
The replay and slides will also be available early
next week at NACDonline.org/webinars and
pearlmeyer.com
Housekeeping
Director Compensation Data for 1,400 Companies Grouped by Industry and Company Size
6
5 Size Categories
Based on Annual Revenue All Companies Publicly-Traded
Micro: $50M-$500M
Small: $500M-$1B
Medium: $1B-$2.5B
Large: $2.5B-$10B
Top 200: Largest 200
Companies in the
S&P 500
Across 24 industries based on
GICS at the group level
Micro21%
Small21%
Medium22%
Large22%
Top 20014%
Board Composition Continues to Evolve
7
Board CompositionMicro Small Medium Large Top 200
% with 1-year Term Length 51% 60% 58% 73% 92%
% with > 1-year Term Length 49% 40% 42% 27% 8%
Median Director Age (yrs) 64 63 64 64 64
Median Director Tenure (yrs) 9.1 8.9 8.8 8.5 8.2
Prevalence of Disclosure 27% 39% 53% 64% 84%
Median Retirement Age 72 72 72 72 72
Median No. of Directors (a) 7 8 9 10 11
% of cos. with >= 1 female director 54% 70% 75% 88% 100%
% of cos. with >= 2 female director 19% 23% 34% 59% 85%
% of cos. with >= 3 female director 3% 7% 11% 21% 39%
Prevalence of Combined CEO/COB 43% 41% 47% 47% 63%
(a) Includes non-employee and employee directors
Mandatory
Retirement
Board
Gender
Diversity
Total Direct Compensation Increased by 1% to 5% Against the Prior Year
8
Annual Growth in Median Total Direct
Compensation
2014 2013 2014 2013 2012 2011 2010 2009 2008
Micro $105,583 $101,926 +4% +4% +1% +6% +20% -3% -5%
Small $144,643 $142,573 +1% +11% +2% +6% +10% -6% +2%
Medium $181,358 $172,754 +5% +4% +4% +8% +13% -2% +1%
Large $214,283 $204,079 +5% +6% +4% +6% +7% -1% +6%
Top 200 $258,000 $253,474 +2% +4% +6% +1% +5% +1% +4%
Median Total Direct
Compensation
Year-over-year Changes in Compensation Driven by Cash Retainer and Stock Award Values
9
Year-Over-Year Change in Compensation by ElementBoard Compensation Micro Small Medium Large Top 200
Cash Retainer (a) 10% 11% 0% 11% 6%
Board Meeting Fees (b)(c) 14% -2% 0% 0% 1%
Total Stock Award (a) 6% 10% 7% 9% 4%
Total Board Compensation (a) 5% 3% 5% 6% 4%
Committee Compensation (c) 4% -5% -1% -2% -8%
Total Direct Compensation 4% 1% 5% 5% 2%
TDC Per Meeting 15% 11% 8% 8% 5%
Total Board Cost 1% -1% 9% 7% 3%
(a) Reflects median of all companies (i.e., summary data includes zeros)
(b) Board meeting fees reflect median of those companies using that pay element
(c) Includes meeting fees and committee fees paid in cash and/or stock
Full-value Stock Accounts for the Largest Portion of Total Pay
10
37% 34% 31%33%
34%7%5% 4%
3%
1%
11%9%
9%7%
5%
33%
43%
47%
50%
54%
11%
8%
9%
6%
5%
$105,583
$144,643
$181,358
$214,283
$258,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Micro Small Medium Large Top 200
36%35% 31%
33%34%8%
7% 4%4%
2%
11%
10% 9%
8%6%
32%
40%
46%
47%
53%
12%
8%
9%
8%
6%
$101,484
$142,188
$172,259
$204,079
$253,474
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Micro Small Medium Large Top 200
Board Stock Options
Board Full-Value Stock
Committee Pay
Board Meeting Fees
Board Cash Retainer
NACD Leading Practice: Deliver at Least 50% of Pay in Equity
11
Percentage of Companies Delivering 50% or More of Total Director Pay in Equity
45%49%
67%63%
78%
48%53%
70% 70%
80%
44%
60%
73% 70%
85%
0%
25%
50%
75%
100%
Micro Small Medium Large Top 200
2012
2013
2014
Full-value Shares Preferred Over Stock Options
12
26%20% 22%
15% 13%
71%
87% 87%93% 96%
0%
25%
50%
75%
100%
Micro Small Medium Large Top 200
Stock Options
Full-value Shares
Prevalence of Stock Option and Full Value Share Equity Grants
Majority of Companies in All Size Categories Use Fixed Value Equity Grants
13
Equity Grant Practices: Fixed Values vs. Fixed Shares
Board Equity Micro Small Medium Large Top 200
Total Firms Providing Equity 86% 93% 94% 97% 99%
Fixed Value (a) 56% 68% 62% 77% 80%
Fixed Shares (a) 39% 27% 31% 17% 12%
Combination (a) 5% 6% 7% 6% 8%
The Decline in Committee Meeting Fee Prevalence Continues
14
YoY Change in Prevalence of Committee Meeting Fees
Micro Small Medium Large Top 200
Chair -3% -7% -3% -5% -3%
Member -3% -7% -4% -5% -3%
Chair -3% -7% -5% -3% -3%
Member -3% -7% -5% -3% -3%
Chair -3% -7% -4% -3% -3%
Member -3% -7% -4% -3% -3%
Audit
Comp
Nom/Gov
Committee Meeting Fees More Likely to be Replaced with Adjustments to Board Pay Elements
15
YoY Change in Prevalence of Any Committee Pay
Micro Small Medium Large Top 200
Chair -1% -1% -1% +1% 0%
Member 0% -2% -3% -3% 0%
Chair -1% +0% -1% +2% +2%
Member -1% -2% -2% -1% -1%
Chair -1% 0% -1% +2% 0%
Member -1% -3% -1% 0% 0%
Audit
Comp
Nom/Gov
Audit Committee Chairs Continue to be Paid a Premium Over Other Committee Chairs
16
$15,0
00 $20,0
00
$23,0
00
$25,0
00
$25,0
00
$10,0
00
$13,5
00
$15,0
00
$18,0
00
$20,0
00
$6,2
50
$10,0
00
$12,0
00
$13,5
00
$15,0
00
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Micro Small Medium Large Top 200
Audit Chair
Comp Chair
Gov Chair
Median Pay for Top 200 Compensation and Nom/Gov Committee Members is $0
17
$5,6
25 $
7,5
00
$10,0
00
$10,0
00
$6,6
25
$3,2
50 $
5,0
00 $
7,0
00
$7,2
00
$0
$1,5
00
$3,0
00 $
5,0
00
$5,0
00
$0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Micro Small Medium Large Top 200
Audit Member
Comp Member
Gov Member
Prevalence of Premium Comp for Board Leadership
18
• Prevalence of premium compensation for Non-executive
Chairs flat but increasing for Lead/Presiding Directors
• Non-executive Chairs continue to receive a larger pay
premium relative to Lead/Presiding Directors
Compensation for Non-Executive Board Leadership
Prevalence Difference:
Premium Compensation for
Non-exec Chair vs. Lead /
Presiding Director
Median TDC for Board
Leadership (b)
Median Board Leadership
TDC as a Multiple of Board
Member TDC (b)
Non-Executive
Chairs
Lead /
Presiding2014 2013
Non-Executive
Chair
Lead /
Presiding
Non-Executive
Chair
Lead /
Presiding
Micro 87% 61% 26% 27% $150,273 $114,500 1.50x 1.12x
Small 89% 64% 25% 29% $200,000 $140,593 1.42x 1.12x
Medium 90% 68% 22% 27% $261,000 $187,000 1.48x 1.13x
Large 87% 80% 7% 11% $320,000 $222,000 1.59x 1.11x
Top 200 85% 76% 9% 13% $420,000 $270,036 1.80x 1.10x
(a) Prevalence based on those firms with that type of independent board leadership
(b) Excludes fees paid for committee service
Prevalence of Premium
Compensation for (a)
Ownership Guidelines Typically Expressed as a Multiple of Annual Cash Retainer
19
• Holding requirements increasingly common
Prevalence of Stock Ownership Guidelines (SOG)
Micro Small Medium Large Top 200
% of Companies with Any Form of Guideline 46% 67% 75% 87% 88%
% of Companies with Multiple of Retainer Guideline 34% 51% 61% 63% 68%
Median Multiple of Retainer Requirement 3.0x 3.0x 5.0x 5.0x 5.0x
% of Companies with Share-based Guideline 9% 7% 10% 16% 13%
% of Companies with Dollar-based Guideline 3% 11% 6% 11% 9%
Median Dollar Value Requirement $150,000 $197,500 $245,000 $250,000 $400,000
Full Value Share Holding Requirements
Prevalence 11% 15% 15% 19% 28%
Specified Time in Years 33% 23% 23% 18% 9%
Until or Beyond Retirement 19% 30% 33% 43% 76%
Until Ownership Guideline Achieved 48% 48% 44% 39% 15%
Median % of Shares Required to Be Held 50% 100% 100% 100% 100%
Key Takeaways
Modest
– Compensation increases in the mid-single-digits for the foreseeable
future
Simple
– Elimination of meeting fees and committee pay in favor of cash retainer
and equity grants
Aligned
– Equity > cash
– Ownership guidelines and holding requirements
20
ADVANCING EXEMPLARY BOARD LEADERSHIP
Questions
ADVANCING EXEMPLARY BOARD LEADERSHIP
Thank You
Don’t Miss Our Upcoming Webinar
Join NACD and Pearl Meyer & Partners for the next program in our Compensation Series:
March 12, 2015
To register or check out the archives of earlier webinars in this series, visit NACDonline.org/webinars.
23
24
If you have any questions regarding NACD credit or the
Fellowship programs, please contact:
Meghan Metzbower, Senior Fellowship Program Manager
Phone: (202) 803-6764
Email: [email protected]
To learn more about NACD Fellowships, visit us at
NACDonline.org/Fellowships.
NACD Credit and Fellowship Information