Page 637 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

622 The Complete Guide to Executive Compensation

Companies that have retainer and attendance fees for the full board acknowledge an
ongoing responsibility and away-from-the-site work. They also recognize a need to attend
meetings in order to discharge those responsibilities. Those with only a retainer are imply-
ing that regardless of attendance, the director is responsible for board actions; those with
only an attendance fee are requiring the director to appear and make his or her position
known. The retainer-only approach is similar to the salary element for executives; those
with a meeting fee only have an attendance (not to be confused with a performance) bonus.
However, when the practice is not consistent with the philosophy, obviously the practice
should be changed. For example, a company might conclude that the ongoing responsibility
and attendance are of about equal value. Assuming 12 board meetings a year, the attendance
fee should logically be 1/12 of the annual retainer. Typically, the size of such payment is
related to the size of the organization, with the multibillion-dollar companies paying
significantly more than those a fraction of their size.
In addition to the normal director’s compensation for serving on the board, most
companies pay extra for serving on board committees. In some instances, they pay the
traditional retainer plus a per-meeting fee. In other cases, they pay only a fee for meetings
attended or simply a retainer with no meeting fees. Some companies provide a separate
annual retainer for the chairman of each committee in recognition of organizational respon-
sibilities (e.g., developing agendas, meeting with management, coordinating staff work,
and reviewing recommendations), in addition to or in lieu of annual retainers for other
committee members. Some pay each committee chair the same dollar retainer; others
differentiate based on perceived importance and/or amount of work.
Some elect not to pay a meeting fee if the committee meeting is held on the same day as
the board meeting. This suggests payment is for the inconvenience of meeting rather than
the committee importance. In such situations, committees may decide to hold some meetings
by telephone at a different date in order to be paid for their services—an example of how
a poorly designed program can modify behavior. Some consider it inappropriate to pay
directors for telephone meetings and/or actions taken by written consent.
Probably the most prevalent practice is for a company to pay the same fee for attending
a committee meeting as a board meeting. This may be appropriate, but the company should
examine the relationship. For those who conclude that much of the critical work is done in
committee and that the board meetings are more perfunctory, the decision could be to have
committee fees higher than board attendance fees. Conversely, if the board is the focal point
and the committees are more information gathering in nature, perhaps board fees should be
higher. The important point is that the impact of each should be assessed in setting the fee
structure. A related issue is what to pay for visits to company sites.
Few companies pay management directors a board retainer or fee for attending
meetings; however, with the exception of the CEO, many probably consider the elevation
to the board as an increase in responsibilities that should result in a higher job grade and
higher pay.
In addition to a retainer and meeting fees, some directors receive additional compensa-
tion from the company for their specialized services (e.g., investment banker or attorney). As
indicated earlier, most identify these individuals as affiliated, nonmanagement directors.
The governance committee should review the survey results, along with the recommen-
dations, and pass its recommendation on to the board. Typically, the board has approved the
changes in director pay, but this means they are approving their own pay. If non-employee
directors are excused from voting, it means that only one or two employee-directors would