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Corporate Directors’ Pay Ratchets Higher as Risks Grow

Pay for nonexecutive directors of S&P 500 companies rose nearly 50% between 2006 and 2014

Wednesday, February 24, 2016 - 15:29
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Editor's note: 

Part of a series on corporate boards and directors.

Director pay has received scant attention over the years as investors, regulators and the public have focused on soaring executive compensation. 

Yet an examination of pay for the nonexecutive directors of S&P 500 companies—about 4,300 men and women—shows that pay has climbed nearly 50% between 2006 and 2014. The figures exclude chief executives and other senior managers who sit on their own company’s board. 

The median pay of an S&P 500 board member is $255,000 a year, according to a Wall Street Journal analysis of data as of Oct. 30 from MyLogIQ and regulatory filings. Some directors receive four or five times as much. The total annual pay for all those directors: $1.4 billion.

For most, fulfilling a director’s duties—overseeing top executives, shaping strategy and fending off crises—is a part-time job, taking just shy of five hours a week. Full board meetings typically are held less than once a month. 

Of course, the demands on directors can become much greater. Responding to an approach from an activist investor, for example, can quickly turn a board seat into a full-time job, and directors often find themselves in activists’ crosshairs. Shareholder lawsuits increasingly seek to hold directors responsible for corporate failings, and new regulatory requirements have increased the workload for many board members. 

“Over time, the amount of work and effort and risk has gone up a lot,” said David Larcker, an accounting professor who studies corporate governance at Stanford University’s business school. 

At Regeneron Pharmaceuticals Inc., directors each made at least $1.7 million in its last reported year, and Chairman P. Roy Vagelos made $20.5 million in cash, stock and benefits. Median director pay at software maker Inc. reached $655,000 in its most recently reported year. At Goldman Sachs Group Inc., it was $594,000, or more than twice the median pay for S&P 500 companies. 

A Regeneron spokeswoman said its directors all joined the board before 2011, when the company’s shares started rising sharply, making Regeneron the S&P 500’s top-performing stock for the past five years. Directors are paid primarily in stock options, aligning their financial interests with those of other investors, and the past two rounds of options are currently underwater, the spokeswoman said.

“Our industry and its regulatory framework are complex, requiring abundant director time commitment,” said a spokesman for Goldman, adding that most of its board’s pay is in restricted shares.

Salesforce declined to comment.

There are few rules on director pay, which boards generally set themselves, often with help from outside experts. And those rules generally call only for disclosure.

A few companies pay their directors little or nothing. In 2014, Berkshire Hathaway Inc. directors got $900 for attending an in-person meeting, plus $300 each for conference calls, and another $4,000 a year for those serving on the board’s audit committee; no director received more than $6,700 for the year.

Berkshire Hathaway CEO Warren Buffett has warned that directors dependent on board fees aren’t truly independent. His 2014 letter to shareholders makes Berkshire’s low pay a selling point for the board.

“None took the job for the money,” he wrote. “They receive their rewards instead through ownership of Berkshire shares and the satisfaction that comes from being good stewards of an important enterprise.”

On average, about half of the S&P 500’s director pay is in restricted stock, options or other instruments tied to the price of company shares, the Journal analysis shows.

“All things being equal, it should be more heavily weighted toward equity than cash,’’ says Bess Joffe, head of corporate governance for TIAA-CREF, a big asset manager.

Median stock ownership among S&P 500 directors is $2.06 million; only about 3.5% of directors held no shares at all, according to data provider Equilar.

Muddying the pay picture: A small proportion of directors who also serve as nonexecutive employees or consultants to the companies they help run. They can make millions of dollars from their day jobs at those companies. 

Take Regeneron’s chairman, Mr. Vagelos, whose $20.5 million pay package made him the highest-paid nonexecutive director in the Journal’s analysis. His 1998 employment agreement gives him a $100,000 annual salary, and he receives an annual stock-option award that is generally 10 times what other directors receive. In return, he has agreed to advise management on everything from strategy and operations to hiring. “The level of effort required for these activities will approximate 30 to 50 hours per month,” the agreement states.

Mr. Vagelos, a former CEO of Merck & Co., declined to comment. 

Board pay doesn’t seem so significant to many directors, who often make much more from their full-time jobs.

Greg Brenneman —the lead independent director at Home DepotInc., and a director at Baker HughesInc. and, until recently, Automatic Data Processing Inc. —made $551,000 from those three board seats in the most recently reported year. Mr. Brenneman is CEO of a private-equity firm and once ran restaurant chains Quiznos and Burger King.

“I don’t even know what I make at Home Depot,” he says, beyond noting that most of it is in company shares. “I don’t know of any board members of the boards I am on that think about the board pay.” 

Mr. Brenneman estimates that he spends between two and 20 hours a week on work for the Home Depot board, which met eight times during the company’s past fiscal year; key committees met between four and 10 times.

In the end, overseeing a large, complex company may not be a part-time job, says Robert J. Jackson Jr. , a Columbia University law professor who was an adviser to President Barack Obama’s pay czar during the financial crisis.

“The fiction is, if these people are smart enough and accomplished enough, spending four hours a week is enough to understand the most complicated companies in the world,” Mr. Jackson says. “It’s not.” 

Others say time isn’t the real issue. Boards serve as an invaluable panel of expert advisers, on call and available when executives need them, says Peter Gleason, president of the National Association of Corporate Directors. 

“The aggregate cost to have that caliber of people available to the CEO and management team is not much when you’re thinking about a multibillion-dollar company,” Mr. Gleason says. “When you need them, you need them.”


Directors are mostly paid in cash and stock. But at many big companies, the perks aren’t bad either, even if they don’t always cost big bucks. Some noteworthy perks at S&P 500 companies, based on proxy filings:

Free Stuff

General Motors Co. directors get the use of a new company car every six months, and yearly after retirement. “Directors are expected to submit product evaluations to us,” GM’s proxy says. 

Carnival Corp. encourages directors to take annual cruises of up to two weeks to get to know its products. They pay $35 a day, as do guests sharing their staterooms.

Apple Inc. gives directors one of each new product it introduces, if they want it. In the year ended Sept. 26., that cost $1,483 to $9,182 for current directors. 


Free flights on company jets are less common than they were, but several big companies still fly directors’ spouses to board meetings and other events. 

Three of oil-service giant Schlumberger Ltd.’s 11 directors collectively racked up nearly $100,000 of such flights in 2014 and $26,024 last year. 

Visa Inc. paid $38,500 to bring guests of two directors to the 2014 Winter Olympics in Sochi, Russia, where it was a sponsor. 

Charitable Gifts

Many companies match directors’ charitable donations, often up to $10,000 or $20,000 a year.

Merck & Co. reported matching nearly $200,000 from eight directors in 2013 and 2014. Those retiring often get to direct larger contributions to charities of their choice. 

General Electric Co. has allowed directors to steer $1 million in company funds to as many as five charities upon retirement.

Health Benefits

UnitedHealth Group Inc. offers directors health insurance on the same terms as employees, if they lack coverage, continuing for up to eight years after retirement. 

Three current directors received the benefit, bringing the bill to $11,905.

CVS Health Corp. gave more than $8,000 in prescription benefits to four of its eight directors.

Tax Gross-Ups

Walt Disney Co. reimbursed directors for the taxes they owed on its “product familiarization benefits,” which give them free merchandise and services. The tax bill totaled $18,860 for one director and more than $13,000 each for two more in the year ended Oct. 3.

--Theo Francis

Highest & lowest median directors' pay for S&P 500