Press Releases

Director Pay In Flux - 2003 Proxies Reveal Restructuring of Board Pay Programs
2003 Proxies Reveal Restructuring of Board Pay Programs; Higher Pay for Committee Chairs and Alternatives to Options

NEW YORK, May 12, 2003 - An early proxy analysis of 50 of the largest U.S. companies shows over 70% making changes in their Board compensation programs this year - twice as many firms as normally review Directors' pay in a given year, according to executive compensation consultants Pearl Meyer & Partners.

The changes point to the start of a major shift in the level and structure of Board pay programs as a result of the Sarbanes-Oxley Act and new proposed rules and regulations aimed at improving Board oversight. Those initiatives will significantly affect the nature of service on corporate Boards, as well as the challenges of recruiting qualified new Directors.

"The intense focus on better corporate governance will result in higher levels of Board pay to recognize the increased responsibilities, the number and duration of Board and committee meetings and the new governance standards that Directors will be measured against," said Edward C. Archer, Managing Director of Pearl Meyer & Partners. For example, 28% of the companies in the proxy review increased Board retainers by an average of 49%. Mr. Archer predicted that average Board total remuneration is likely to grow upwards of 20% this year, with a potential total rise of 50% or more over the next several years.

Differentiated pay favored
In addition to higher overall pay, there is a trend toward differentiating Director pay based on an individual member's responsibilities. For instance, about one-third of the companies surveyed instituted or raised committee chair retainers, reflecting the increasingly pivotal role played by committees in the conduct of major Board business. Audit Committee Chairs were the most affected, reflecting the imposition of heightened qualifications for membership and more rigorous procedural requirements in the wake of recent accounting scandals. Additionally, 6% of companies added or increased compensation for a Lead Director or separate Chairman, positions that many corporate governance watchdogs advocate to enhance a Board's independence.

Use of stock options questioned
While Director pay programs continue to include a significant equity component, a quarter of the companies surveyed reported changes in their grant practices. Of those, twice as many shifted to more use of full value shares in Director pay programs as opposed to those that increased option grants. Mr. Archer said heavy use of stock options at some companies has been blamed for fostering an inappropriately short-term performance perspective among Board members. The prolonged market slump has provided an additional reason for companies to rethink equity use.

Mr. Archer noted that the full impact of corporate governance concerns on Board pay programs will not be evident for several years, as major companies phase in program changes. Full details on 2003 pay practices will be provided in Pearl Mayer & Partners' 2003 Director Compensation report, focusing on the Top 200 companies, as well as in the National Association of Corporate Directors' annual Director Compensation Survey, which will include more than 1,000 additional companies.

About Pearl Meyer & Partners
Founded in 1989, Pearl Meyer & Partners is recognized for its counsel to Board Compensation Committees and senior managements. The firm specializes in the evaluation, design, development and implementation of compensation programs for executives, employees and Boards, as well as issues related to corporate governance. Services also include customized marketplace surveys, organizational development and sales incentives, all supported by strong actuarial and benefits expertise. Headquartered in New York, Pearl Meyer & Partners maintains offices in Atlanta, Boston, Charlotte, Chicago, Houston and Los Angeles.

Pearl Meyer & Partners is a practice of Clark Consulting (NYSE: CLK), a leading publicly traded firm in its field, serving more than 3,800 U.S. companies nationwide with comprehensive advice on the design, financing and administration of compensation and benefit programs.

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