Rhoda Edelman, of Pearl Meyer and Partners, a New York-based consultancy specializing in board pay, identifies five hot trends in director compensation based on the firm's most recent survey:
- Board pay in stock is an ongoing trend, of course, but Edelman says it has now reached a "critical mass" to become the new norm. "The biggest trend is the amount now being paid in equity. In the firms we surveyed, 52% of pay is now in stock."
- A potential FASB policy change on accounting for director stock pay could bring major turmoil. "FASB issued a paper in March (1999) saying that, since directors aren't considered employees of the company, stock options used in their pay should result in a charge to earnings. This could bring major change -- 108 of 200 companies we surveyed use options for board pay." Though FASB later put off action on the plan, look for some version of it to return in the future.
- On the topic of director stock pay, the latest trend is formal share-ownership guidelines for directors. "There are more guidelines, typically calling for the purchase of multiples of the director's pay." But there's still little sign of teeth being put into these guidelines -- Rosenberg hasn't heard of any board members being penalized for failing to meet them.
- Payment of distinct board and committee meeting fees seems to be in decline. "More companies are just wrapping these fees into an overall retainer."
- Paying directors totally in company stock, while still uncommon, is becoming less of a newsworthy oddity. "We found 7 or 8 of the companies in our top 200 now paying directors all in stock, with no cash."
Copyright © 1999 Ralph Ward's Boardroom INSIDER