News: Analysis & Commentary: EXECUTIVE SUITE
HOW MUCH SHOULD IT TAKE TO KEEP THE BOARD ON BOARD?
For years, corporate directors have endured the wrath--and the proxy votes--of investors seeking to rein in their CEOs' runaway compensation packages. Now, directors have to worry about another paycheck: their own.
At more than two dozen companies this year, shareholders are seeking to strip directors of the generous retirement benefits they have been awarded routinely since the early 1980s. Among the companies facing such challenges: Avon Products, Woolworth, and McGraw-Hill, the publisher of BUSINESS WEEK. "This is just another way to get something extra for coming to a meeting six or seven times a year," complains Thomas E. Flanagan, president of the Investors Rights Assn., which has sponsored resolutions at 21 companies.
Broad reform probably is on its way. Already, some companies have begun linking directors' pay to performance by awarding stock or options in lieu of or in addition to cash. And in early June, the National Association of Corporate Directors--a widely respected group whose members include CEOs and directors--is expected to release a sheaf of proposals on how directors should be paid.
Shareholder activists have plenty of fodder. Besides annual retainers, which averaged about $30,000 last year, board members typically receive meeting fees, stock options, stock grants, and pensions. The upshot: The average director of a large company got about $83,000, according to a survey of 200 companies by Pearl Meyer & Partners Inc., a benefits consultant.
DITCHING PENSIONS. At American Express Co., for example, directors such as Henry A. Kissinger were awarded $64,000 retainers in 1994. Members who also chair a board committee pocket an additional $10,000. Each director receives options on 1,000 AmEx shares, plus a $30,000 annual pension, $50,000 in free life insurance, $300,000 worth of accidental death coverage, and a $500,000 gift upon death to a chosen charity.
Companies argue that big-money benefits, including pensions, are needed to attract and retain the best directors. Already, though, Alexander & Alexander Services Inc. has agreed to ditch its pension program for directors. Other companies are making broader changes: Travelers Inc. and Scott Paper Co. no longer pay directors fees for attending meetings or chairing committees. Instead, Travelers pays a flat retainer of $75,000--in stock. That's no small sum--but it's a clear step toward moderation.
Some benefits under fire
BALTIMORE GAS & ELECTRIC Nonemployee directors receive pensions for life equal to their annual retainer, currently at $18,000 a year
PHILIP MORRIS Pensions equal the $26,000 annual retainer, plus 25% of attendance fees up to $6,000 a year, paid for a period equal to years of service
SPRINT After retirement, board members continue to get $35,000 annual retainer, paid monthly, for up to 10 yearsBy John A. Byrne in New York