Press Releases

Calm Before the Storm - Average Board Pay at Largest 200 Companies Stays Flat at $154K

NEW YORK, March 27, 2003 - After years of fairly steady growth, average compensation for Boards of Directors at the nation's largest corporations remained virtually flat, up less than 1% to $154,016, according to an analysis of 2002 proxies by executive compensation consulting firm Pearl Meyer & Partners. However, the firm predicts pay gains for 2003 of as much as 20%, along with significant changes in how Director pay is delivered.

"High-profile situations such as Enron and WorldCom have fueled intense interest in corporate governance reform, inspiring a host of emerging new requirements from legislators, regulators and the stock exchanges," said Edward C. Archer, Managing Director of Pearl Meyer & Partners. "Directors face unprecedented scrutiny, increased risks and responsibilities, and tough new standards for their skills and independence - all of which will be reflected in new Board programs."

Board Pay Components
Since 1997, Board compensation has been growing at an overall average pace of 10% per annum, with equity -- in the form of stock retainers, full value shares and stock option grants -- accounting for an increasing portion of Board pay. Stock accounted for 63% of total remuneration as reported in 2002 proxies, according to the firm's report on Director compensation at the 200 largest U.S. companies. All but three companies utilized equity on a mandated basis and five companies paid their Directors entirely in stock.

The average $154,016 Board pay package included direct stock awards and options valued at $82,335; annual cash retainer of $35,057; stock retainer valued at $14,415; meeting fees and committee/chair retainers of $21,483; and a pension value of $722. Director pensions, which as recently as 1995 were standard fare at nearly three-quarters of the Top 200 companies, were offered by only four companies.

Mr. Archer anticipates that along with increasing total pay, in part by raising annual retainers, Board pay programs going forward will make less use of stock options, in favor of full value shares. Long favored by corporate governance activists, options have become less attractive in light of the down market, recent controversy surrounding executive stock option programs and an expected new ruling by accounting regulators to treat the cost of options as an expense.

While the use of meeting fees declined in 2002 for the third straight year, to 65%, Mr. Archer said he also expects that trend to reverse. "Important Board business increasingly is being delegated to special committees, particularly audit and compensation, that are composed of independent directors," he said. "As a result, retainers and fees for committee chairs, as well as members of these committees, also will be higher and more prevalent."

Healthcare Leads in Board Pay, While Technology Falls Behind
After five years as the top-paying industry, Technology dropped to fourth place among the 21 industries surveyed, largely due to a 40% drop in the average value of equity awards made to Technology Board members. The Healthcare industry moved into first place, with average pay of $241,262, followed by the Diversified Financial and Brokerage sector at $201,491 and Pharmaceuticals at $183,428. Board remuneration was lowest in the Transportation/Delivery, Chemical/Paper Products and Motor Vehicle and Parts industries.

Study Information
Since 1989, Pearl Meyer & Partners has studied Director Compensation at the 200 largest U.S. industrial and service corporations, excluding mutual companies, regulated utilities and companies with dominant insider ownership.

This year's study results are based on year 2002 proxy statements issued through August 31, 2002.

Stock valuations are based on the stock price of each company on the date of the annual meeting. Options are valued at 33.3% of face value.

About Pearl Meyer & Partners

For over 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to not-for-profits as well as emerging high-growth companies.These organizations rely on Pearl Meyer & Partners to develop programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose.