The Director Compensation Project: Proctor & Gamble

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Proctor & Gamble’s (PG-NYSE) 2007 proxy statement.

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Norman R. Augustine	101,000	125,000	—	7,135	233,135
Scott D. Cook	89,000	125,000	—	540	214,540
Joseph T. Gorman	99,000	125,000	—	540	224,540
Rajat K. Gupta	—	—	—	—	—
Charles R. Lee	123,000	125,000	—	6,607	254,607
Lynn M. Martin	89,000	125,000	—	12,348	226,348
W. James McNerney, Jr.	93,000	125,000	—	1,046	219,046
Johnathan A. Rodgers	79,000	125,000	—	7,891	211,891
John F. Smith, Jr.	116,000	125,000	—	7,886	248,886
Ralph Snyderman	109,000	125,000	—	4,537	238,537
Margaret C. Whitman	95,000	125,000	—	922	220,922
Ernesto Zedillo	89,000	125,000	—	9,645	223,645

Director Compensation . Proctor & Gamble's board met seven times last year, the directors attended more than 95% of the meetings. Four directors received more than $100,000 in director’s fees paid in cash and the non-employee directors as a group averaged $228,736 in total compensation for their services. This figure excludes Rajat K. Gupta who is new to the board and did not receive compensation for the fiscal year. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure . On average, the non-employee directors have served on the board for over eight years. This figure excludes Norman R. Augustine, and Joseph T. Gorman, who both retired. All of the current directors sit on other boards. For example, W. James McNerney, Jr. is Chairman, President, and CEO of The Boeing Company.

CEO Compensation . The CEO, A.G. Lafley, received $27,736,000 in total compensation last year, a relatively small portion of which came in the form of cash ($5,200,000). Roughly 75% ($19,558,000) of his compensation was in the form of stock and options awards, the value of which was dependent upon company performance. Approximately $377,000 of Mr. Lafley's compensation was "other compensation."