This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 Verizon (VZ-NYSE) 2009 Proxy Statement. According to the proxy statement, the company paid the directors the following amounts:

Name*	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Change in Pension Value** ($)	Total ($)
Richard L. Carrion	93,000	26,709	0	4,773	124,482
M. Frances Keeth	101,000	69,363	0	0	170,363
Robert W. Lane	101,000	26,709	0	1,467	129,176
Sandra O. Moose	110,000	26,709	0	5,137	141,846
Joseph Neubauer	108,000	26,709	0	0	134,709
Donald T. Nicolaisen	101,000	30,491	0	0	131,491
Thomas H. O’Brien	126,000	26,709	0	1,015	153,724
Clarence Otis Jr.	101,000	33,836	0	2,258	137,094
Hugh B. Price	93,000	26,709	0	67	119,776
John W. Snow	93,000	72,169	0	0	165,169
John R. Stafford	93,000	26,709	0	11,371	131,080
Robert D. Storey***	46,5000	26,709	0	0	73,209

* Chairman and CEO Ivan Seidenberg is not entitled to director compensation as an employee-director

**Verizon does not give its directors “other compensation,” with the exception of directors who were elected before 1992. Those directors are eligible for a charitable giving program where Verizon will contribute an aggregate of $500,000 to charities designated by the director.

*** Mr. Storey resigned in May, 2008, and his fees were prorated for services rendered.

 

Director Compensation. The board met eleven times in 2008 with an average attendance of 96%, with no individual director attending less than 75% of the meetings. All non-employee directors received an annual $85,000 cash retainer along with a grant of Verizon shares equivalent to $130,000. Verizon requires directors to credit their share equivalents to their deferred compensation account, then invest in a hypothetical Verizon stock fund which is paid in a lump-sum after the director leaves. Stock awards and options exercised from the annual share equivalents range from $26,709 to $72,169 for former Treasury Secretary John Snow, who serves on Verizon’s board. When combining stock awards and deferred pension compensation, director earnings ranged from a low of $119,776 to a high of $170,363.

 

Director Tenure. The tenure of Verizon’s board is diverse. Board tenure ranges from two years to twenty-two years of service, with four directors serving at least twelve years. Eleven directors serve on multiple boards, with five of the twelve directors simultaneously serving on the boards of three or more corporations. Primary among these are Dr. Sandra O. Moose, who also serves as a director of Rohm and Haas Company, The AES Corporation, Natixis Advisor Funds, and Loomis Sayles Funds.

 

CEO Compensation. Ivan Seidenberg serves as Chairman and CEO. In 2008, Mr. Seidenberg’s total compensation was $18,573,638, down from the $26,553,576 earned in 2007. Total compensation for 2008 included a $2,100,000 salary, more than $11,000,000 in stock awards, and $3,740,625 in a non-equity incentive plan. In total, $946,754 of Mr. Seidenberg’s compensation is classified as “all other.” These included the personal use of company aircraft and company vehicle together totaling $158,000.

 

William Barr was Executive Vice-President until his retirement on December 31, 2008. In 2008, Mr. Barr’s total compensation was $15,911,560. Mr. Barr also served as Verizon’s general counsel until November 6, 2008. Mr. Barr’s compensation included $863,077 in salary, $3,000,000 in stock awards, and $10,380,000 in his retirement agreement and bonus structure.

 

Without Mr. Barr’s retirement, Dennis Strigl, the President and COO, would be second in total compensation earning $11,062,661. The lion’s share of Mr. Strigl’s compensation was a $1,319,231 salary coupled with $7,075,305 in stock awards. Mr. Strigl also received $657,410 in company perquisites including $138,182 in personal use of company aircraft and $14,496 for personal use of a company vehicle.

As part of this Blog’s student created Director Compensation Project, we have created a series tables on corporate compensation. Below is a table compiling some of the more infamous CEO perquisites. The chart covers the 2009 Fortune 100’s top 20 companies, Wells Fargo, Goldman Sachs, and Chesapeake Energy Company. The notation “NP” (Not Provided) means the corporation either does not provide its CEO with that perquisite, the company compensates for that service but does not disclose the exact amount, or has bundled that amount with a total “other compensation” figure. The figures provided are for exact amounts to show how much corporations are compensating CEOs for these services.

 

 

Company	Personal Use of Company Aircraft ($)	Personal Use of Company Automobiles ($)	Personal Security ($)
Exxon Mobil	45,251	NP	222,985
Wal-Mart Stores	149,093	NP	NP
Chevron	93,876	2,237	987
Conoco Philips	54,975	NP	NP
General Electric	189,449	22,844	NP
General Motors*	-	-	-
Ford Motor Company	344,109	NP	112,114
AT&T+	83,022	26,834	4,269
Hewlett-Packard	135,734	NP	255,872
Valero Energy**	NP	NP	NP
Bank of America Corp.	220,267	NP	13,791
Citigroup	NP	2,393	NP
Berkshire Hathaway	NP	NP	315,709
International Business Machines	493,881	NP	NP
McKesson	48,844	5,089	514,528
J.P. Morgan Chase & Co.	53,856	89,020	NP
Verizon Communications	158,000	15,462	NP
Cardinal Health	196,095	NP	NP
CVS Caremark	110,845	2,885	5,798
Procter & Gamble	225,404	NP	NP
Goldman Sachs Group	NP	124,593	NP
Wells Fargo Company	NP	NP	NP
Chesapeake Energy Company++	648,096	NP	NP

* General Motors has not filed its 2008 proxy statement

**Valero paid its CEO's club membership worth $5,000

⁺ AT&T paid $19,565 in Club Membership fees for its CEO

⁺⁺ Chesapeake paid $12.1 million for a collection of historical maps of the American southwest, which it gave to its CEO

Over the last several weeks, The Race to the Bottom has covered corporate compensation through its Director Compensation Project. In an effort to compile the mass of information, we are providing a series of charts to compare how these corporations are compensating their executives and directors. In the following table, we have paired average director compensation, executive total compensation, and if the corporation has separation between its CEO and Chairman of the Board. The companies are Fortune 100’s top 20, Wells Fargo, Goldman Sachs, and Chesapeake Energy Company, a company with extraordinarily high compensation. 

 

Company	Average Director Compensation ($)+	Chief Executive Officer Total Compensation ($)	Separation of CEO and Chairman of the Board
Exxon Mobil	398,400	22,414,602	N
Wal-Mart Stores	225,628	30,156,490	Y
Chevron	246,684	19,271,249	N
Conoco Philips	409,831	29,391,987	N
General Electric	280,798	14,096,603	N
General Motors*	N/A	N/A	N/A
Ford Motor Company	155,713	13,565,378	N
AT&T	275,604	11,565,255	N
Hewlett-Packard	285,899	42,514,524	N
Valero Energy	262,833	10,471,795	N
Bank of America Corp.	153,018	9,959,076	N**
Citigroup	206,472	10,815,263	Y
Berkshire Hathaway	4,033	175,000	N
International Business Machines	263,014	28,524,392	N
McKesson	240,456	39,942,625	N
J.P. Morgan Chase & Co.	255,691	1,000,000	N
Verizon Communications	139,901	18,573,638	N
Cardinal Health	191,258	11,060,176	N
CVS Caremark	445,407	24,102,648	N
Procter & Gamble	181,648	23,532,410	N
Goldman Sachs Group	313,923	1,113,771	N
Wells Fargo Company	252,860	13,782,433	Y
Chesapeake Energy Company	669,516	100,069,201	N

 

 

 

⁺To give a more accurate depiction of average director compensation, we limited the directors included in the formula. We excluded directors who did not serve on the board for all of fiscal year 2008 (because of retirement or mid-year appointment) and executives who served on the board. Additionally, Citigroup’s average does not include director Hernández Ramirez

because his compensation was only for “other compensation” including security and perquisites.

* General Motors has not filed its 2009 proxy statement.

** On April 29, 2009, Bank of America’s shareholders stripped its CEO of his chairmanship; however, he will continue to serve as the company’s Chief Executive Officer.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 500 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 the Chesapeake Energy Corporation (CHK-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Richard K. Davidson	150,500	415,552	-	173,621	739,673
V. Burns Hargis	57,750	383,700	-	38,107	479,557
Frank Keating	147,500	466,040	-	149,318	762,858
Breene M. Kerr	135,000	466,040	-	183,647	784,687
Charles T. Maxwell	141,000	466,040	-	13,486	620,526
Merrill A. Miller, Jr.	143,500	287,235	-	111,289	542,024
Don Nickles	144,000	466,040	-	143,339	753,379
Frederick B. Whittemore	150,500	466,040	-	56,881	673,421

Director Compensation. The Chesapeake board met four times in person and thirteen times by teleconference. Directors averaged of 80% of all board and committee meetings. Other than director Kerr who earned $57,750 in cash, fees paid in cash ranged from $135,000 to a high of $150,500. Total compensation for directors averaged $669,516, while stock awards were over 63% of that total.

Director Tenure. Half of the board has served only since 2005. Director Whittemore has the longest tenure on the board, serving since 1993. None of Chesapeake’s board members are up for reelection in 2009; terms of directors Keating, Miller, and Whittemore will expire in 2010. Several directors serve on other boards. Mr. Maxwell serves on the boards of American DG Energy Inc. and Daleco Resources. Director Miller is also on the boards of the Offshore Energy Center, Petroleum Equipment Suppliers Association, Spindletop International, and is a member of the National Petroleum Council. Mr. Keating is a former Governor of Oklahoma, who served two terms beginning in 1994.

CEO Compensation. Mr. Aubrey K. McClendon serves as Chairman of the Board and CEO of Chesapeake Energy. Mr. McClendon earned an impressive $100,069,201 in total compensation for 2008, substantially up from his 2007 compensation of $18,764,484. His fees comprise of a $975,000 salary, bonus amounting to $79,951,000, stock awards of $20,342,384, and other compensation of $1,800,817. Chesapeake paid $648,096 for Mr. McClendon’s personal use of the company aircraft and $12.1 million for a collection of historical maps of the American Southwest. Chesapeake’s second highest paid executive was Mr. Jacobson, Executive Vice President of Acquisitions and Divestitures, who earned $12,089,727, which includes $168,417 for personal use of the company aircraft. Additionally, CFO Marcus Rowland’s compensation included $809,744 for personal use of the company aircraft

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 know as SOX 301.

 One can see some of the effects of these rules when looking at the director compensation table from Wells Fargo & Company (WFC-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

 

Name*	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
John D. Baker II**	-	-	-	-	-
John S. Chen	111,000	70,009	45,422	-	226,431
Lloyd H. Dean	135,000	70,009	45,422	-	250,431
Susan E. Engel	133,000	70,009	45,422	-	248,431
Enrique Hernandez, Jr.	154,250	70,009	45,422	-	269,681
Donald M. James**	-	-	-	-	-
Robert L. Joss	158,000	70,009	45,422	-	273,431
Richard D. McCormick	130,750	70,009	45,422	-	246,181
Mackey J. McDonald**	-	-	-	-	-
Cynthia H. Milligan	137,000	70,009	45,422	-	252,431
Nicholas G. Moore	139,000	70,009	45,422	-	245,431
Philip G. Quigley	167,000	70,009	45,422	-	282,431
Donald B. Rice	134,000	70,009	45,422	-	249,431
Judith M. Runstad	123,000	70,009	45,422	-	238,431
Stephen W. Sanger	149,000	70,009	45,422	-	264,431
Robert K. Steel**	-	-	-	-	-
Susan G. Swenson	137,000	70,009	45,422	-	252,431
Michael W. Wright	125,000	70,009	45,422	-	240,431

* Management-directors do not receive separate compensation for their board service.

**Directors who joined the Board effective January 1, 2009, following the completion of the Wachovia merger.

Director Compensation. Wells Fargo & Company’s (“WFC”) board met fifteen times in 2008. There were seven regular and eight special meetings. All directors attended at least 75% of the board meetings and the meetings of the committees on which he or she served. All non-employee directors received between $111,000 and $167,000 in direct cash compensation. Non-management directors averaged $252,860 in total compensation for 2008. Directors Baker, James, McDonald, and Steel are former directors of Wachovia, which various members of the WFC board recommended to serve as directors for WFC in connection with the Wachovia merger. Their service on the WFC Board began January 1, 2009, and thus they did not receive compensation from WFC for the 2008 year.

In 2008, stating an initiative to enhance corporate governance practices, WFC created the new position of Lead Director. Independent, non-management directors elected Mr. Quigley to serve as the board’s first Lead Director, for which he will receive an annual cash fee of $30,000. Lead director duties include working with the Chairman and CEO to approve board agendas, preside at executive sessions or special meetings of non-management and independent directors, and to facilitate greater communication between directors and senior management.

 Director Tenure. Discounting the four directors recently added to the board, directors of Wells Fargo & Company have served on the Board for an average of over ten years. Mr. Kovacevich has served on the Board since 1986. Seven other directors have served for at least ten years. WFC CEO, Mr. Stumpf, and Mr. Chen are the newest directors, each having joined the board in 2006. At least fourteen directors hold directorships in public companies other than WFC. Mr. Hernandez sits on the board of Chevron Corp., McDonalds Corp., and Nordstroms, Inc. Mr. Kovacevich and Mr. Sanger sit on the board at Target Corporation. Mr. Baker and Mr. Rice hold directorships at Vulcan Materials Company. Mr. White is set to retire from the Board at this year’s annual meeting.

 CEO Compensation. Mr. John G. Stumpf, who serves as CEO and President, earned $13,782,433 in total compensation for 2008. Mr. Stumpf received a base salary of $878,920. In 2008, Mr. Stumpf did not receive any cash incentive compensation awards (bonuses), nor did he receive any stock awards. By comparison, Mr. Stumpf received bonuses of $4,200,000 in 2007 and $5,500,000 in 2006, as well as receiving at least $21,000 in stock awards for each of those years. In 2008, Mr. Stumpf’s deferred compensation-pension value decreased by $272,152. Despite these decreases, Mr. Stumpf earned $12,933,498 in “Options Awards,” an amount greater than four times his “Options Awards” compensation in either 2007 or 2006.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 Goldman Sachs (GS-NYSE) 2009 Proxy Statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
John H. Bryan	-	214,360	114,231	10,000	338,591
Claes Dahlback	-	303,539	-	-	303,539
Stephen Friedman	-	307,715	-	-	307,715
William W. George	-	303,539	-	-	303,539
Rajat K. Gupta	-	75,077	228,462	-	303,539
James A. Johnson	-	214,360	114,231	20,000	348,591
Lois D. Juliber	-	303,539	-	20,000	323,539
Edward M. Liddy*	273,718	-	-	-	272,718
Lakshmi N. Mittal**	-	151,809	-	-	151,809
Ruth J. Simmons	-	303,539	-	20,000	323,539

*Mr. Liddy resigned from the board in September. His compensation was prorated to his departure and paid in cash rather than in stock awards.

**Mr. Mittal joined the board in June. His compensation is prorated based on when he joined the board.

 

 

Director Compensation. Goldman’s board conducted sixteen meetings in 2008 averaging 95% director attendance. Each director attended at least 75% of the meetings. Non-employee directors receive a $75,000 annual retainer as well as a $25,000 bonus for serving as one of three committee chairs. The retainers are offered as 953 Restricted Stock Units (RSU’s), valued at the closing common stock price on December 17th, which was $78.78 per share. Director compensation for those serving the full year ranged from a low of $303,539 to a high of $348,591. Directors are eligible to participate in a matching charitable gift program where Goldman will match up to $20,000 contributed by directors to their chosen charities.

 

Director Tenure. Eleven directors serve on Goldman’s board with an average tenure of five years. Three directors share the longest tenure at nine years, with one director having served less than one year. Eight directors serve on other boards with Mr. Gupta’s service the most extensive, serving on AMR Corporation, Genpact LTD, Harman International, and Proctor and Gamble. Other directors serve on various other boards including General Motors, Exxon Mobile, Procter & Gamble, and E.I du Pont de Nemours.

 

CEO Compensation. Mr. Lloyd Blankfein serves as Chairman and CEO. Mr. Blankfein’s total compensation for 2008 was $1,113,771, approximately half of which was his base salary of $600,000. Significant in Mr. Blankfein’s 2008 compensation is the stark difference between his 2008 pay of just over one million dollars from his 2007 compensation, which was just over $70 million dollars. The reason for this dramatic drop was Goldman’s decision not to offer stock, RSU, or option awards for fiscal 2008 to their key corporate officers. Mr. Gary Cohn, who serves as President and COO experienced a similar change in earnings. In 2008, Mr. Cohn was compensated $3,661,729 with a base salary of $600,000. In 2007, however, Mr. Cohn earned $72,511,357. The reduction in compensation was Goldman’s suspension of bonuses to its top executives.

 

A car perquisite was part of the compensation for the top five Goldman executives, three of which, the CEO, COO, and CFO received more than $100,000 for commuting and non-business use. COO Jon Winkelreid had the highest car allowance at $124,593. The $69,389 vehicle compensation for Vice Chairman J. Michael Evans included payments to a third-party car service.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

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 $120,000 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, 5605(a)(2), 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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from the United Technologies Corporation (UTX-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Louis R. Chênevert	0	0	0	0	0
George David	0	0	0	0	0
John V. Faraci	0	281,648	0	1,768	283,416
Jean-Pierre Garnier	0	230,000	0	1,768	231,768
Jamie S. Gorelick	0	220,000	0	14,219	234,219
Edward A. Kangas	0	126,477	0	0	126,477
Charles R. Lee	92,000	138,000	0	1,738	231,738
Richard D. McCormick	0	260,000	0	26,403	286,403
Harold McGraw III	0	227,677	6,867	1,738	236,282
Richard B. Myers	100,000	168,281	0	1,738	270,019
H. Patrick Swygert	0	250,000	0	18,271	268,271
André Villeneuve	0	250,000	0	13,563	263,563
Christine T. Whitman	92,000	145,677	6,867	2,389	246,933

 

 

Director Compensation. UTC’s Board met seven times during 2008. Each director attended 75% or more of the aggregate number of meetings of the Board and committees on which he or she served. Only three of the thirteen directors received cash compensation for 2008, and no amount was over $100,000. Stock awards ranged from $126,477 awarded to Mr. Kangas to $281,648 awarded to Mr. Faraci. In 2008, five directors received a one-time $100,000 restricted share unit award that is made upon election to the Board.

Director Tenure. Mr. Gutierrez, the former U.S. Secretary of Commerce, is the newest director. He was elected a UTC director in February 2009. Mr. David has the longest tenure, having served on the board since 1992. Several directors also sit on other boards. Mr. Lee, a director since 1994, is also a director of United States Steel Corporation, Marathon Oil Corporation, The Procter & Gamble Company and The DIRECTV Group, Inc. Ms. Whitman, a director since 2003, is also a director of Texas Instruments Incorporated, S.C. Johnson & Son, Inc. and the Council on Foreign Relations. In addition, she served as Administrator of the U.S. Environmental Protection Agency from January 2001 through June 2003 and was Governor of the State of New Jersey from 1994 through 2001.

CEO Compensation. Louis R. Chênevert serves as President and CEO. In 2008, he earned a salary of $1,318,974 and a bonus of $3,000,000. His total compensation for 2008 was $18,009,832, which also included a stock award of $4,376,921 and an option award of $6,208,773. Included in his total compensation is his personal use of corporate aircraft, lease vehicle payments, cash allowances, insurances premiums and other benefits, all of which total $266,726.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Walgreens (NYSE:WAG) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
William C. Foote	45,000	155,000	0	6,579	206,579
James J. Howard*	12,596	132,596	20,104	3,544	168,840
Alan G. McNally	74,258	155,000	0	4,850	234,108
Cordell Reed	37,500	155,000	0	3,636	196,136
Nancy M. Schlichting	35,000	155,000	0	1,475	191,475
David Y. Schwartz	55,000	155,000	0	4,105	214,105
Alejandro Silva*	22,500	22,500	0	101	45,101
James A. Skinner	42,500	155,000	0	3,028	200,528
Marilou M. von Ferstel	35,000	155,000	20,720	2,142	212,862
Charles R. Walgreen III	35,000	155,000	0	0	190,000

*Compensation amount reflects fees earned through retirement date.

 

Director Compensation.  During fiscal year 2008, Walgreens held 11 Board of Directors meetings and 19 Board Committee meetings.  Each director attended at least 86% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  In November 1996, Walgreens initiated the Walgreen Co. Nonemployee Director Stock Plan.  Under this plan, each nonemployee director received a grant of Walgreens’ common stock on November 1 according to a dollar value set by the Board.  On November 1, 2007, this grant increased to $120,000.

Director Tenure.  In 2008, Mr. Walgreen III, who has held his position as a member of the Board of Directors since 1963, held the longest tenure.  Mr. Howard and Mr. Silva, who retired on January 1, 2009, each served on the Board for one year.  Several directors also sit on other boards.  Mr. Skinner sits on the boards of McDonald’s Corporation and Illinois Tool Works, Inc.  Mr. Foote is also a director of USG Corporation, Kohler Co., and the National Association of Manufacturers.  He serves as Deputy Chairman for the Board of The Federal Reserve Bank of Chicago.

CEO Compensation.  Jeffrey Rein, who served as Walgreens’ Chief Executive Officer until October 10, 2008, earned $6,232,950 during the fiscal year.  Mr. Rein resigned his position after 27 years with the company and now sits on the Board of Directors for J.C. Penny Co.  Mr. Rein began his employment with Walgreens as an assistant manager, working his way through various promotions until he became CEO in 2006.  His retirement package included payment of all accrued vacation and six months of continued base salary, bonus, and benefits.  Mr. Rein will also receive an additional six months of continued base salary, bonus, and benefits pursuant to a Retirement and Non-Competition Agreement signed with the company.  Gregory Wasson, President and Chief Operating Officer of Walgreens, received $2,621,653 in total compensation in 2008.  This represents an increase of 10.7% to $775,000 base salary in January 2008.  Mr. Wasson’s base salary is slightly above the January 2008 median base salary for President/COOs at companies within Walgreens’ peer group.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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 5605(a)(2), 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 Boeing's (BA-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
John H. Biggs	85,000	130,000	0	30,000	245,000
John E. Bryson	81,749	130,000	0	31,000	242,749
Arthur D. Collins, Jr.	75,000	130,000	0	17,000	222,000
Linda Z. Cook	75,000	130,000	3,258	13,500	221,758
William M. Daley	75,000	130,000	0	0	205,000
Kenneth M. Duberstein	105,792	130,000	0	25,000	260,792
James L. Jones*	75,000	130,000	0	0	205,000
Edward M. Liddy*	75,000	130,000	0	0	205,000
John F. McDonnell	75,000	130,000	0	37,000	242,000
Rozanne L. Ridgway*	40,000	65,000	0	25,000	130,000
Mike S. Zafirovski	80,000	130,000	0	25,000	235,000

* Compensation amount reflects fees earned through retirement date.

 

Director Compensation. During 2008, Boeing’s board of directors met eight times, having six regular meetings and two special meetings. Each incumbent director attended at least 83% of the meetings of the Board and the committees on which he or she served.

Of the eleven directors, all but one director received between $75,000 and $106,000 in cash compensation. Non-employee directors averaged $219,482 in total compensation for their services.

 

Director Tenure. Four of the eleven active directors have served on the board since 1997. Mr. Bryson has the longest tenure serving on the board since 1995. The average tenure of board is eight years. Several directors also sit on other boards. Mr. Duberstein, a director since 1997, is also a director of ConocoPhillips, Fannie Mae, and St. Paul Travelers Companies. Mr. Biggs is a director at J.P. Morgan Chase & Co. and the National Bureau of Economic Research as well as a trustee of Washington University in St. Louis.

Executive Compensation. W. James McNerney, Jr., who serves as Chairman, President and CEO, received $18,979,605 in total compensation for 2008. Of his total compensation, Mr. McNerney received $1,915,288 as base cash salary. In addition, Mr. McNerney received $463,415 in personal benefits paid by the company, life insurance premiums of $267,725, and company contributions to retirement plans of $114,917. The personal benefits included $287,062 for personal use of Company aircraft, $67,157 in personal legal services, and $57,994 for personal use of a transportation service (car and driver). Mr. McNerney’s compensation changed little from what he received in 2007, which was $18,997,099

James A. Bell, Boeing’s Chief Financial Officer, received $5,905,119 in total compensation for 2008, including a base cash salary of $806,149. Mr. Bell received $322,607 in personal benefits paid by the company, which included $258,139 for personal use of Company aircraft and $47,485 for personal use of a transportation service (car and driver).

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 know as SOX 301.

 

One can see some of the effects of these rules when looking at the director compensation table from Morgan Stanley’s (MS-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name*	Fees Earned or Paid in Cash ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
Roy J. Bostock	85,000	250,000	-	335,000
Erskine B. Bowles	85,000	250,000	-	335,000
Howard J. Davies	90,000	250,000	-	340,000
C. Robert Kidder	125,000	250,000	-	375,000
Donald T. Nicolaisen	100,000	250,000	-	350,000
Charles H. Noski	105,000	250,000	-	355,000
Hutham S. Olayan	85,000	250,000	-	335,000
Charles E. Phillips, Jr.	90,000	250,000	-	340,000
O. Griffith Sexton	75,000	250,000	-	325,000
Laura D. Tyson	95,000	250,000	-	345,000

* On October13, 2008, Morgan Stanley issued to Mitsubishi UFJ Financial Group, Inc. (MUFG) 7,839,209 shares of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock and 1,160,791 shares of Series C Non-Cumulative Non-Voting Perpetual Preferred Stock for an aggregate purchase price of $9 billion. In connection with such issuance, Morgan Stanley entered into an Investor Agreement with MUFG dated as of October13, 2008 (Investor Agreement), whereby Morgan Stanley agreed to take all lawful action to cause one of MUFG’s senior officers or directors to be a member of Morgan Stanley’s Board of Directors. Pursuant to the terms of the Investor Agreement, the Board increased the size of the Board from eleven (11)to twelve (12)directors and elected Mr.Nobuyuki Hirano to the Board effective March10, 2009.

 

Director Compensation. Morgan Stanley’s board met twenty-eight times in 2008. All directors attended at least 75% of the board meetings. Each director received base retainers of $75,000, supplemented by additional retainers for serving as a lead director ($30,000), board committee chair ($20,000-$30,000), or board committee member ($10,000-$15,000). Of the eleven directors, all but two received between $75,000 and $105,000 in cash compensation. Additionally, each director received $250,000 in stock awards, half of which is only payable on the director’s retirement from the Board. Non-employee directors averaged $343,500 in total compensation.

 

Director Tenure. Only two of the twelve active directors served on the board prior to 2004. Mr. Kidder, who serves as the lead director, has the longest tenure, serving on the board since 1993. Ms. Sexton is the second-longest, joining the Board in 1997. Several directors also sit on other boards. Donald Nicholaisen, a director since 2006, also sits on the boards of MGIC Investment Corporation, Verizon Communications, and Zurich Financial Services. Charles Noski, a Board member since 2005, also serves as a director for Microsoft Corporation, Air Products and Chemicals, Inc., and Automatic Data Processing, Inc.

 

CEO Compensation. John Mack, who serves as Chairman and CEO, received $1,235,097 in total compensation for 2008. Mr. Mack received $800,000 as base cash salary and $6,100 in 401(k) matching contributions; however, for both 2007 and 2008, he did not receive a bonus. As directed by the Board, Mr. Mack used the corporate jet for his personal travel needs at a value of $368,675. On March 10, 2009, he announced he would reimburse Morgan for his personal use of company aircraft, up to the amount allowed by FAA regulations. Also, Morgan Stanley paid $46,520 for his personal security and an undisclosed amount for use of a company car.

The firm’s two highest-paid officers were Mr. Kelleher and Mr. Lynch, neither of whom served as CEO. Colm Kelleher, the CFO, received $7,442,682 in total compensation in 2008; he received only $322,903 in salary, but $3,970,219 was in bonuses and $728,122 in stock awards. In addition, because he is covered by Morgan Stanley’s overseas reimbursement policy, he received $2,196,369 under the policy, including housing expenses, tax reimbursements and tax equalization payments, financial advisory and tax planning services, reimbursement for educational costs, and cost of living adjustments. Though Mr. Kelleher’s total compensation is the firm’s highest for 2008, it is down from $21,015,689 in total compensation he received in 2007.

Gary Lynch, the Chief Legal Officer, received $4,017,611 in total compensation for 2008. While Lynch received only $300,000 in salary, he received $3,169,000 in bonus payments. Like Mr. Kelleher, Mr. Lynch’s 2008 earnings, while high, pale in comparison to the $11,899,964 he earned in 2007.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 receive over $120,000 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, 5605(a)(2), 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 Johnson and Johnson’s (JNJ – NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

 

Name	Fees Earned or Paid in Cash	Stock Awards	Option Awards	All Other Compensation	Total
	($)	($)	($)	($)	($)
Mary S. Coleman	110,000	99,973	0	29,344	239,317
James G. Cullen	130,000	99,973	0	9,344	239,317
Michael M.E. Johns	110,000	99,973	0	28,717	238,690
Arnold G. Langbo	120,000	99,973	0	29,344	249,317
Susan L. Lindquist	110,000	99,973	0	9,344	219,317
Leo F. Mullin	120,000	99,973	0	29,344	249,317
William D. Perez	110,000	99,973	0	22,906	232,879
Charles Prince	116,861	99,973	0	5,604	222,438
Steven S. Reinemund*	38,000	99,973	0	121,902	259,875
David Satcher	120,000	99,973	0	9,344	229,317

 

*Compensation amounts reflect fees earned through retirement date.

 

Director Compensation Johnson and Johnson’s 2008 Board of Directors consisted of twelve members. Of the twelve, ten were non-employees. The board met for seven scheduled meetings and two special meetings. Each director attended at least 75% of all meetings. Each non-employee director received an annual fee of $100,000. In addition to the annual fee, non-employee directors received $5,000 for service on a board committee and $15,000 for service as chairman of a board committee. The Presiding Director of each committee received an additional $10,000. Employee directors did not receive extra compensation for service on the board. All directors had the option to participate in the company’s matching gifts program, where Johnson and Johnson would match charitable contributions up to $20,000 per year. In 2008, five directors participated in the matching gifts program. Johnson and Johnson contributed $20,000 on behalf of each director.

 

Director Tenure Only three directors have served on the board prior to 2000. The director with the most tenure, Arnold G. Langbo, joined the board in 1991. The board calls for mandatory retirement upon turning 72. The board granted Mr. Langbo, who turned 72 prior to the annual meeting, an additional year of service on an exception basis. Mr. Langbo also serves as a director for The Hershey Company, Weyerhaeuser Company, and Whirlpool Corporation.

 

CEO Compensation William Weldon, Chairman and CEO, received $29,392,224 in total compensation for 2008. Mr. Weldon’s base salary was $1,792,019. Of his total compensation, Mr. Weldon received $184,165 in perquisites and other personal benefits, including $154,045 for personal use of company aircraft. The board recommended an increase in Mr. Weldon’s base salary for 2009 based on his 2008 performance. Mr. Weldon declined the increase in light of the current economic environment.

 

Christine A. Poon, Vice Chairman, was the second highest compensated executive. Ms. Poon received $10,402,493 in total compensation. Of her total compensation, Ms. Poon’s base salary was $1,042,404. Ms. Poon received $19,413 in personal benefits.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

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 $120,000 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, 5605(a)(2), 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 Target (TGT-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

 

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Roxanne Austin	115,000	58,438	79,824	0	253,262
Calvin Darden	90,000	56,018	79,824	0	225,842
Mary N. Dillon	0	216,395	0	0	216,395
James Johnson	0	79,061	418,819	6,997	504,877
Richard Kovacevich	90,000	109,670	243,530	0	443,200
Mary Minnick	0	248,836	0	0	248,836
Anne Mulcahy	90,000	56,018	79,824	0	225,842
Derica W. Rice	0	166,589	0	0	166,589
Stephen Sanger	0	0	380,376	4,529	384,905
George Tamke	90,000	109,670	243,530	0	443,200
Solomon Trujilo	0	27,441	216,670	17,084	261,195
Robert J. Ulrich*	1,600,000	(7,058,609)	4,245,562	1,285,507	1,056,205

* Robert J. Ulrich retired as CEO on May 1, 2008 but stayed on as Chairman of the board until January of 2009.

Director Compensation: Target’s board met seven times during 2008. All directors attended at least 75% of the board meetings. Seven directors received zero cash payments but were compensated almost entirely with stock and options. Also, seven out of the twelve directors earned under $300,000 for serving on the board. In addition to directors’ total compensation, each director receives a 10% discount on all goods purchased from Target throughout their lifetimes. Non-employee directors also receive $100,000 of accidental life insurance.

Director Tenure: The average tenure of a director is 9.5 years. The longest serving members of the board are Solomon D. Trujillo and Robert J. Ulrich (CEO and Chairman of the Board) who have each served for fifteen years. Several directors also sit on other boards. Roxanne S. Austin, Richard M. Kovacevich, and Anne M. Mulcahy each serve on at least three other boards. Ms. Austin sits on the boards of Abbott Laboratories, Teledyne Technologies Incorporated, and LM Ericsson Telephone Company. Mr. Kovacevich serves on the boards of Wells Fargo & Company, Cargill, Inc., and Cisco Systems, Inc.

CEO Compensation: Robert J. Ulrich, who served as CEO and Chairman of the Board, received $1,056,205 in total compensation for 2008. In May of 2008, he retired from being CEO, but he remained Chairman of the Board for the rest of 2008. Robert J. Ulrich’s compensation in 2008 significantly decreased from his two previous years. In 2007, Mr. Ulrich received $12,185,404 in total compensation, while in 2006, he received $36,428,691. Gregg W. Steinhafel became Target’s CEO in May of 2008 and Chairman of the Board in February of 2009. In 2008, Mr. Steinhafel received $5,861,417 in total compensation. In 2008, Target’s CEOs combined for $6,917,622 in total compensation. Target’s CEOs also used the company’s plane for a total of $177,491 in 2008. Mr. Ulrich and Mr. Steinhafel’s other perks included a company provided car or car allowance, reimbursement of financial management and home security expenses, parking, an on-site exercise room, spousal travel on business trips, gifts, and executive physicals. Their combined perks cost Target $111,882 in 2008. Mr. Ulrich’s perks also included $140,500 in local commuting services. Lastly, Mr. Ulrich and Mr. Steinhafel also both received memberships in a downtown business club for an undisclosed amount.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 Costco’s (COST-NASDAQ(GS)) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Jeffrey H. Brotman	430,000	3,032,914	1,339,753	122,980	4,925,647
Richard D. DiCerchio	627,098	1,820,351	722,597	95,439	3,265,485
Richard A. Galanti	612,063	678,510	606,685	121,031	2,018,469
Benjamin S. Carson, Sr., M.D.	35,000	209,353	0	0	244,353
Susan L. Decker	34,000	132,801	0	0	166,801
Daniel J. Evans	44,000	221,895	0	0	265,895
William H. Gates, Sr.	36,000	221,895	0	0	257,895
Hamilton E. James	38,000	222,939	0	0	260,939
Richard M. Libenson	34,000	222,939	0	0	256,939
John W. Meisenbach	33,000	222,939	0	0	255,939
Charles T. Munger	43,000	222,939	0	0	265,939
Jeffrey S. Raikes*	0	0	0	0	0
Jill S. Ruckelshaus	36,000	222,939	0	0	258,939

* Mr. Raikes joined the board in December 2008

Director Compensation.  COSTCO’s board met four times in 2008.  Except for Ms. Decker, all directors attended at least 75% of the board meetings.  Of the fourteen directors, all but five directors received between $33,000 and $44,000 in cash compensation.  Non-employee directors averaged $223,363 in total compensation for their services. In October 2007, each non-employee director received a grant of 3,000 Restricted Stock Units (“RSUs”). These vested one-third on October 17, 2008, and will vest one-third annually on October 17 for the following two years.  Moreover, directors are reimbursed for travel expenses incurred in connection with their duties as directors. 

Director Tenure.  Only four of the fourteen active directors have served on the board since 2000.  Mr. Sinegal, Mr. Brotman and Mr. Meisenbach have all served on the board since its inception in 1983.  Mr. Raikes, the newest member, joined the board in December 2008.  Several directors also sit on other boards.  Daniel Evans, a director since January 2003, also sits on the boards of NIC Inc., and Archimedes Technology Group.  Mr. Munger, a director since January 1997, also serves on the boards of Berkshire Hathaway Inc., Daily Journal Corporation, and Wesco Financial Corporation.

CEO Compensation.  James D. Sinegal, a co-founder who serves as CEO and President, received $4,906,696 in total compensation for 2008.  Of his total compensation, Mr. Sinegal received $350,000 as base cash salary.  Mr. Sinegal only received 40% of his possible cash bonus due to the failure of the company to meet its fiscal goals.  Nonetheless, Mr. Sinegal’s total compensation for 2008 increased by almost 65% over his total 2007 compensation.  This increase was due in large part to the 277% increase in stock awards from the previous year.  In addition, Mr. Sinegal received $67,130 in perquisites.  These other benefits include funds for matching 401K, health insurance premiums, life insurance, and a vehicle allowance.

Jeffrey H. Brotman, a co-founder who serves as Chairman of the Board, received $4,925,647 in total compensation for 2008.  Of his total compensation, Mr. Brotman received $350,000 as base cash salary.  Like Mr. Sinegal, Mr. Brotman received only 40% of his possible cash bonus, but increased his stock awards by 311% over his stock awards from 2007.  This allowed his total compensation for 2008 to increase 66% over his total compensation from 2007.  Mr. Brotman received $61,590 in perquisites.  Similar to Mr. Sinegal, these other benefits include funds for matching 401K, health insurance premiums, life insurance, and a vehicle allowance.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

 

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 $120,000 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, 5605(a)(2), 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 Procter & Gamble (PG-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Annual Retainer ($)	Committee Meeting Fees ($)	Committee Chair ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
Norman R. Augustine	12,500	4,000	1,667	-	50	18,217
Kenneth I. Chenault	25,000	4,000	-	-	-	29,000
Scott D. Cook	93,750	16,000	-	125,000	974	235,724
Joseph T. Gorman	27,083	6,000	3,333	-	-	36,416
Rajata K. Gupta	93,570	12,000	-	125,000	1,412	232,162
Charles R. Lee	93,570	34,000	10,833	125,000	1,100	264,683
Lynn M. Martin	93,570	12,000	-	125,000	1,030	231,780
W. James McNerney, Jr.	93,750	24,000	8,333	125,000	225	251,308
Johnathan A. Rogers	93,570	4,000	-	125,000	3,985	226,735
John F. Smith, Jr.	77,083	18,000	12,500	125,000	3,139	235,722
Ralph Snyderman	93,570	18,000	10,000	125,000	4,195	250,945
Margaret C. Whitman	93,570	16,000	1,666	125,000	511	236,927
Patricia A. Woertz	50,000	8,000	-	-	945	58,945
Ernesto Zedillo	93,570	12,000	-	125,000	3,757	234,507

Director Compensation. The Procter & Gamble board met nine times in 2008. Directors averaged an attendance greater than 83% of all board and committee meetings. Fees paid in cash ranged from $36,416 to a high of $138,583 for director Lee. The total compensation average for directors was $181,648; however, four directors earned less than $58,945. Discounting these four, the other ten directors earned $240,049 on average.

Director Tenure. Only three Procter directors have served five or less years on the board, while half of the board has served at least since 2001. Directors Lee and Martin share the honor of longest tenure on Proctor’s board, both starting with the company in 1994. Several directors serve on other boards. Ms. Martin serves on the boards of AT&T Inc., Ryder System, Inc., Dreyfus Funds, and Constellation Energy Group, Inc. Director Zedillo is the former President of Mexico, and also serves on the board of Alcoa Inc. and Electronic Data Systems Corporation.

CEO Compensation. Mr. Lafley serves as Chairman of the Board and CEO of Procter & Gamble. His total compensation for 2008 was $23,532,410; including a $1,700,000 salary, $4,000,000 bonus, stock awards amounting to $9,139,783, and “other compensation” of $343,791. Within the CEO’s compensation was $225,404 worth of personal use of the company aircraft. Mr. Lafley’s compensation was down slightly from 2007, where he received $27,735,734 for his services. The company’s second highest paid officer was COO Robert McDonald, who earned $10,951,777 in 2008.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 Marathon Oil (MRO-NYSE) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Charles F. Bolden, Jr.	135,000	125,000	0	0	260,000
Gregory H. Boyce	93,750	125,000	0	0	218,750
David A. Daberko	145,000	125,000	0	7,500	277,500
William L. Davis	135,000	125,000	0	0	260,000
Shirley Ann Jackson	150,000	125,000	0	0	275,000
Phillip Lader	145,000	125,000	0	0	265,000
Charles L. Lee	135,000	125,000	0	0	260,000
Dennis H. Reilly	145,000	125,000	0	0	270,000
Seth E. Schofield	135,000	125,000	0	0	260,000
John W. Snow	135,000	125,000	0	0	260,000
Thomas J. Usher	350,000	0	0	10,000	360,000

Director Compensation.  Marathon Oil’s board met eight times in 2008.  All directors attended 100% of the board meetings.  Of the eleven directors, all but one of the directors received between $110,000 and $140,000 in cash compensation.  The average total compensation for the board is $269,659. 

Director Tenure.  Ten of the directors have been serving on the board since 2000.  Mr. Usher and Mr. Lee are the longest tenured board members; they have served on the board since 1991.  Several directors also sit on other boards.  Mr. Lee also serves on the Boards of Directors of United States Steel Corporation, The Proctor & Gamble Company, United Technologies Corporation, and DIRECTV Group, Inc.  Mr. Reilley also serves on the Boards of Directors of H. J. Heinz Co., Dow Chemical Company, Covidien, Ltd. and the Conservation Fund.

CEO Compensation.  Mr. Cazalot, who serves as CEO and President, received $3,975,950 in total compensation for 2008.  Of his total compensation, Mr. Cazalot received $1,381,250 as base cash salary.  In contrast, Mr. Cazalot received $19,470,725 in total compensation last year.  The company attributes the disparity in total compensation to the declining value of his stock options

Mr. Heminger, an Executive Vice President, received $856,250 as base cash salary.  His total compensation for 2008 totaled $3,125,897.  Mr. Heminger’s total compensation is slightly less than his 2007 number of $3,936,865.

Named executive officers may seek reimbursement for certain tax, estate, and financial planning services up to a specified annual maximum each year, including the year following death or retirement.  Beginning in March 2008, Marathon discontinued the reimbursement of club membership monthly dues and fees and now only provides the initiation fees associated with one club membership.  Unless otherwise authorized by the CEO (or in the case of the CEO, the Chairman of the Board of Directors), Marathon Oil’s named executive officers may not use corporate aircraft for personal use.

Jon Macey at Yale published an editorial in this weeks WSJ contending that the recent spate of congressional interference in the economy (mostly bailout money) was the "first step in an ongoing porcess to socialize American finance."  It's a provocative thesis.  Unfortunately, the essay doesn't really address the issue and is really little more than a challenge to a litany of reforms in the corporate governance area that Macy does not like (and digs at people like Chris Dodd that have little bearing on this thesis).  The piece is particularly critical of say on pay, accusing the government of implementing a system that "shareholders have rejected in the past." (Is this really true? Go here for the other side).

Put aside that not all shareholders have rejected say on pay, the more salient issue is how criticism of the practice contributes to Macey's contention that finance is becoming socialized.  Moreover, Macey has, in the past, expressed almost talismatic reliance on the market to police all things wrong with corporate governance.  But surely there is widespread agreement that with respect to risk taking and executive compensation, the market approach has failed.  Yet his essay offers no solution other than snippets that suggest he would continue to rely on the market. 

Thus, he opposes limits on golden parachutes because "many top executives need to be pushed out."  The absence of golden parachutes "will lead to the kind of managerial entrenchment that has crippled the economy."  In effect, this is an admission that boards of directors cannot be counted on to replace inefficient management (something he acknowledges in his book, Corporate Governance, where he asserts that the CEO often has "captured" the board).  In other words, the current system doesn't work.  Moreover, to the extent that executives need financial inducements to leave, presumably they would prefer exessive inducements to stay and only take the exit package as a last resort.  In other words, Macey really opposes all mandated limits on executive compensation, a dicey position given the obvious excesses that have occurred in recent years.

No one, including this Blog, enjoys the government's deepening involvement in the corporate governance process.  The idea that the CEO of GM could only be ousted because the President of the United States essentially fired him is highly unfortunate.  But it reflects a failure of a corporate governance model implemented by Delaware and largely supported by academics like Jon Macey.  It is, therefore, no great surprise that he would criticize the government solution without mentioning the source of the problem.

There are many many problems with the Delaware model of corporate governance.  We have noted that Delaware applies the business judgment rule to duty of loyalty decisions (read executive compensation) when the board consists of a majority of independent directors.  The approach entirely ignores the fact that this allows the interested influence to remain in the decision making process.  Moreover, as we have noted time and time again, the Delaware courts use a number of devices to pre-terminate the exploration of director independence, often not letting the allegations get past a motion to dismiss.  For a more complete discussion of these issues, read Disloyalty Without Limits: 'Independent' Directors and the Elimination of the Duty of Loyalty.  The result is that independent boards are often not independent at all.

We have likewise noted that directors have an economic incentive to do what the CEO wants.  Sitting on the board of a public company can be an incredibly lucrative proposition.  In 2007, the directors of Goldman Sachs received around $700,000 in total compensation.  The Delaware courts, however, have an almost categorical rule that fees are not taken into account in determining whether directors are independent.  Because fees can clearly be material, the only analytically defensible basis for the approach is that the CEO has no ability to terminate the material income stream.  (The Delaware Courts use less definsible justifications including the argument that applying the materiality analysis would result in the elimination of "regular folk" from the board). 

While legally true (only shareholders can fire directors), in fact it is practically incorrect.  The best way to lose the comfortable sinecure of a board seat is to not be renominated.  The best way to not be renominated is to irritate the CEO.

With that in mind, we turn to In re: Affiliated Computer Services, Inc. Shareholder Litigation, 2009 Del. Ch. LEXIS 35 (Del. Ch. Feb. 6, 2009).   The case is a relatively straightforward demand excusal case where, as usual, shareholders had their case dismissed for failing to make demand.  The Chancery Court concluded that the board in fact contained a majority of independent directors.

The more interesting thing is the facts.  It seems that the outside directors irritated the CEO.  The consequence?  He insisted that they all resign.  As the opinion noted:  "That same day, Deason (by letter from a New York lawyer purporting to act as counsel to ACS, but delivered through Deason's personal counsel) demanded the immediate resignation of all of the outside directors of ACS, whom the letter accused of various breaches of fiduciary duty, and named four candidates to replace them."  Two days later, the board held a special meeting.  What did the directors do?  Resign, conditioned upon reviewing the candidates proposed by the CEO.

On November 1, 2007, at another special meeting of the Board of Directors, the independent directors informed Deason and the management directors that, because of Deason's and management's conduct, they felt compelled to resign from the Board and not to stand for re-election. However, to ensure that their successors were truly independent and to protect the Company's minority shareholders, the independent directors also stated during the November 1 special meeting that they were prepared, prior to their resignation, to immediately begin the process of reviewing Deason's suggested nominees and any additional nominees proposed by the Company's shareholders. 

Whatever the significance of the assorted allegations of misconduct and breach of fiduciary duty, one thing was clear.  The CEO wanted the directors out and they left.  It is a rare public example of what happens to independent directors when they no longer have the confidence of the CEO. 

While the public nature of this fracas is unusual, the takeaway is widely understood.  The CEO can effectively terminate a director, albeit at the next meeting when he or she is not reelected.  As a result, the CEO can terminate the fees.  Fees, therefore, ought to be tested under the same materiality test as any other income stream received from the company.  But this being Delaware,  fees are simply ignored in the determination of independence.  

The Journal reports that the number of CEO firings is on the rise.  The article doesn't have much perspective, merely noting that there has been a spate of dismissals since the first of the year.

• William Watkins, ousted Monday at Seagate Technology LLC, is the sixth CEO of a publicly held company to be replaced in just the last eight days. His exit follows the departures last week of CEOs at Tyson Foods Inc., Borders Group Inc., Orbitz Worldwide Inc., Chico's FAS Inc. and Bebe Stores Inc.

It would be nice to attribute the behavior to a more active role played by boards in the oversight of public companies.  Alas, it is more likely cyclical.  When markets are down (in this case, way down), more CEOs find themselves unemployed.  But the numbers can be misleading.  Last year, when the bottom fell out, the number of CEO departures increased slightly, from 56 of the S&P 500 to 61.  Moreover, the WSJ noted that the number reflected the companies that "changed" CEOs.  Thus, some of them likely retired or left without board impetus.

There are probably few functions more important for the board of directors than oversight of the CEO and other top officers.  Unfortunately, there is reason to believe that directors receive skewed information about CEO performance and, in fact, are "captured" by top officers.  This is a consequence of weak fiduciary standards and a definition of independent director that does not ensure independence.  In short, it is a problem of Delaware law.

One of the most tone deaf companies when it came to the environment (specifically global warming) had to be Exxon.  Perhaps the most profitable company in the world (at least when gas prices were over $3 a gallon), the company almost managed to lose a shareholder revolt (spearheaded by the Rockefellers) over environmental practices and the need to separate the chairman and CEO. 

On this Blog, we asked about the role of the board.  It was clear that many of the positions were driven by the CEO, Rex Tillerson, and that a more effective board would have tried to bring his views and positions more in line with the mainstream.  We attributed the failure to a "mirror image" board, one that looked like the CEO and was likely to give the CEO only the advise he/she wanted to hear. 

It turns out that Exxon has seen the light and its CEO has now joined the call for a green house gas tax.  It is quite a change, as the article noted.

• The speech signals an evolution in the thinking of Mr. Tillerson, who became chief executive and chairman of Texas-based Exxon, the world's largest Western oil company, in 2006. Mr. Tillerson now calls the issue complex and challenging to understand, but -- in contrast to Exxon's previous party line -- he doesn't question whether fossil fuel use has contributed to rising global temperatures. In 2007, when he gave his last big speech on climate change, he said he didn't support any particular policy for curbing carbon-dioxide emissions.

We applaud Tillerson for coming around on the issue, although Exxon still needs to make a larger mark in the realm of alternative energy sources.  But we still can't help but wonder whether the conversion would have occurred much sooner and at much less cost had the board been a more active source of alternative views for the Exxon CEO.

The NY Supreme Court ruled on the class action brought by shareholders alleging that the forced merger between Bear Stearns and JP Morgan violated the board's fiduciary duties.  The case dismissed the suit on a motion for summary judgment. 

It is hard to argue with the decision and, frankly, presents a good example of how the business judgment rule ought to work.  There was an opportunity for discovery and an exploration of the underlying facts.  The opinion demonstrates relatively conclusively that the board operated under severe conditions, including financial turmoil and weak capital markets.  The fact that the company was originally sold for $2 a share (a price subsequently raised to $10) illustrates that the process was far from perfect but given the difficulties confronted by the board a not unreasonable outcome.  As the opinion noted, it could have been worse, something that Lehman Brothers would discover first hand.

We do note this observation, however.  The court took the opportunity to praise the board.  The opinion pointed out that three directors (Schwartz, Cayne and Greenberg), "were also members of Bear Stearns' management."  The other nine members, however, were outside directors.  They were described as having "broad business and life experience" and the accompanying footnote set out their highly credentialed background.

Fair enough and were we looking at the board from the perspective of this transaction alone, it would be hard to find anything but the most professional of conduct.  But this is a classic example of the type of board that could be viewed has having been captured by management.  Several members of management sat on the board and a number of directors served with them for long periods, providing plenty of time to be captured (if they weren't already when they joined).  It was also an undivese group, not particularly likely to provide top management with differing views.  They were well paid (providing incentives to not "rock the boat") and, in 2006, attended only six board meetings.  Many also served on multiple boards, which presumably stretched their attention span. 

The question, therefore, isn't about the mishandling of the merger with JP Morgan, but how the board allowed Bear Stearns to get into the position where a shotgun merger was the only real salvation.