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More boards are cutting director pay for committee membership, according to a new report by Pearl Meyer. The numbers show that boards are moving toward an “all for one and one for all” approach to director compensation, according to Jan Koors, Managing Director at the compensation advisory firm and head of its Chicago office.
“When things hit the fan, we’re all in this together,” Koors says. “Everybody is adding to the responsibilities of the whole by sitting on whatever committees they are assigned to, so why have a differentiation?”
The trend toward cutting committee membership pay, which Koors says has coalesced over the past five years, could influence board composition choices.
Koors says there has been a streamlining of director compensation in other areas as well. For instance, boards are moving away from offering meeting fees.
The trend toward streamlining director pay is a reversal from common pay practices following the passage of the Sarbanes-Oxley Act in 2002, which encouraged companies to be more granular in how directors were paid. That meant breaking down pay by meeting fees and committee type.
“What we’re seeing is the pendulum swing back,” Koors says.
The report was produced by Pearl Meyer for the National Association of Corporate Directors. It touches on a number of hot topics in director compensation, and includes a discussion of one of this year’s biggest shareholder issues: proxy access.
It’s still unclear how proxy access might impact director pay, but if it becomes widespread, it could change how directors view their duties—and how much they feel they should be paid for their time and service.
At companies that have adopted proxy access bylaws, investors who meet a set threshold of share ownership can nominate a certain number of directors to be listed on the company’s proxy card for election. If shareholders exercise the right to nominate new directors, it could force incumbent directors to campaign for reelection against other proxy-card nominees.
“Do you just take your chances or do you actually have to commit time to campaign and meet with investors to convince them to vote for you instead of the other guy?” Koors asks.