January 07, 2001

A Towers Perrin study shows that the median total annual compensation for outside board members of S&P 500 companies has topped $100,000 for the first time, rising to a median of $100,807 in the year 2000. According to proxy analyses, the upward trend was tied to the increasing use of stock to compensate directors, while median amounts of cash payments to outside directors actually diminished.

Median stock compensation, mostly in the form of stock options, increased to $59,430 in 2000 from $45,500 in 1999, while median cash compensation slipped to $46,000 in 2000 from $48,200 the previous year. "While the median total compensation of over $100,000 for outside directors surpasses a symbolic threshold, the results reflect trends that we've seen in the marketplace for many years," said Ted Jarvis, a Towers Perrin consultant. "That level may not be sustainable in the short run, given recent erosion in stock prices. However, we expect stock-based grants to continue to be a significant part of directors' compensation, regardless of market conditions."

The survey found 89% of the companies made annual stock-based grants to outside directors, while only 11% paid annual compensation entirely in cash. Only 6% of the companies offered retirement benefits, continuing a decline from 22% as recently as 1997.

Board retainer fees constituted $27,125 of total cash compensation. Other elements included a $1,250 median fee for attendance at board meetings, a $4,000 median retainer for committee service, and a $1,000 median fee for attendance at committee meetings. Committee chairpersons receive a $4,000 median retainer and a fee of $500 per committee meeting (in addition to the retainer and attendance fee for normal committee service).

Calculation of the median $59,430 in annual stock-based grants was computed using the Black-Scholes option pricing model to produce a theoretical value of the grants. It represents the "expected value," with actual value varying with fluctuations in the stock price.

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