US BOARD DIRECTORS CONTINUE TO TAKE HOME HEFTY PAY DESPITE BACKLASH
▶ Limits are becoming more common as investors grow impatient with executive compensation
It is nice work if you can get it. The average annual compensation for non-executive directors at S&P 500 companies rose 2 per cent to $304,856 (Dh1.12 million) last year, topping $300,000 for the first time and 43 percent higher than it was 10 years ago, according to a new report released by executive headhunters Spencer Stuart.
But thanks largely to stock grants some earned a lot more than that. Directors at biotechnology company Regeneron Pharmaceuticals received, on average, $1.2m in compensation last year. That figure does not include the more than $6m received by Regeneron’s independent chairman, company disclosures show.
And the non-executive directors of Wall Street powerhouse Goldman Sachs made $599,279 on average in 2018, the highest for any financial company in the S&P. That was, though, down from $604,837 in 2017. The investment bank, which had 13 board meetings last year, declined to comment beyond disclosures.
S&P 500 boards met, on average, only 7.9 times, in person or via telephone during 2018. That is down from nine a decade ago, according to Spencer Stuart.
The bigger payouts are being made at a sensitive time for corporate America. A top contender for the Democratic presidential nomination for the 2020 election, Elizabeth Warren, has boardrooms in her sights as she seeks to tackle inequality in American society. As well as proposals such as a wealth tax aimed at billionaires, Ms Warren has proposed that workers at US corporations elect at least 40 per cent of board members.
Ms Warren’s campaign declined to comment.
Investors are also taking an increasingly feisty view of directors’ compensation, which is typically set by the board itself. A growing number of shareholder lawsuits are challenging big-ticket board compensation packages.
As a result, more companies are expected to put these matters to a shareholder vote at company annual meetings, said Paul Hodgson, a compensation expert and senior adviser at ESGauge, a corporate governance data and analysis company.
“There is a certain amount of nervousness within companies about what they’re paying directors,” Mr Hodgson said. “More attention is being paid to outliers than in the past.”
Compensation limits are also becoming more prevalent, with advisory companies Institutional Shareholder Services and Glass Lewis backing demands from some shareholders, according to global risk advisory company Willis Towers Watson.
A study by the company found the number of businesses with an annual compensation limit for directors increased to 63 per cent in 2018 from 55 per cent the previous year. For some, being a director can mean doing as little as attending regularly scheduled meetings.
Board experts say, though, the job can be a lot more demanding than that. The National Association of Corporate Directors estimates board members commit at least 250 hours a year to their responsibilities.
A director may visit company factories and offices, read and comment on background papers, and is often involved in board committee work. Regeneron director Christine Poon, for example, participated in 21 meetings last year, including 10 as chair of the compensation committee. Directors at software developer Roper
Technologies, who on average received nearly $910,000 in 2018, participate in at least 15 days of board meetings a year, according to the company’s proxy filing. That works out at more than $60,000 per day.
Roper says the compensation reflects their contribution to the company’s superior performance – a cumulative return of 1,084 per cent over the past 15 years compared with the S&P 500’s 207 per cent, according to the proxy.
Roper did not return emails and calls seeking comment.
Some companies are proud to be miserly. Microsoft founder Bill Gates received only $3,300 last year for his work as a director of Berkshire Hathaway, which is run by fellow billionaire Warren Buffett.
And directors at fashion company Ralph Lauren received nearly all of their pay in cash in 2018, and made a lot less than their peers, pulling down just $107,299, according to Spencer Stuart.
At some companies, there is a delay in directors receiving the full benefit of their service. That is the case at Goldman Sachs, whose directors do not receive shares from their restricted stock grants until they retire.
Smaller, lesser-known biopharmaceutical companies can offer the biggest compensation packages.
Vertex Pharmaceuticals awards a $400,000 restricted stock grant to directors that
vests after one year. It is the key feature in a package that averaged $613,128 per director last year. Vertex did not return messages seeking comment.
Regeneron chairman Roy Vagelos received $6.35m in 2018, benefiting from big stock option awards, and that was down from $11.8m in 2017.
Regeneron, known for drugs that treat eye disease, held six board meetings in 2018. Mr Vagelos, a former chied executive of Merck & Co, attended all of those as well as three technology committee meetings.
“The quality of our board is unparalleled – over half our directors are members of the National Academy of Sciences and two of our directors are Nobel laureates,” said
Regeneron spokeswoman Alexandra Bowie when asked about the compensation
Last year, though, Regeneron did agree to curb its director pay as part of a settlement with investors who sued the company, claiming Mr Vagelos and other directors received excessive compensation.
A new compensation plan in effect this year has resulted in a nearly 50 per cent year-onyear decrease in the reported value of director stock awards on the day they were granted. That will probably start to be reflected in numbers for this year.
Pharmaceutical company Incyte, whose board members made an average of $493,657 in 2018, also re-evaluated the way it structured directors’ compensation after getting push back from investors.
Incyte eliminated grants that fixed the number of shares given to directors at the same level each year. When the shares climbed this immediately gave them a year-on-year windfall.
The company now makes annual stock grants based on a target dollar value. Incyte also discontinued an enhanced initial grant of stock for new directors.
“These changes make our board compensation consistent with other companies,” Incyte spokeswoman Catalina Loveman said.