As Companies Prepare for New Disclosure Rules, Board Member Compensation Shifts to 'Pay for Work'.

'Early Disclosers' Say Typical Fee for Special Projects is $50,000, More Firms Pay Extra for Committee Work, Abandonment of Stock Options Continues - Latest Survey by Frederic W. Cook & Co., Inc. Finds

NEW YORK -- As companies prepare to comply with major changes in Securities and Exchange Commission rules on disclosure of executive and board pay, the NYSE 100 and the NASDAQ 100 companies are shifting boards of directors' compensation to emphasize a pay for work philosophy. According to a new survey by Frederic W. Cook & Co., Inc., the percentage of NASDAQ companies providing retainers for Audit Committee and Compensation Committee members was up markedly (approximately 25 percent), while remaining flat at NYSE companies. For the first time, the survey also collected data on fees to directors for special projects, finding the median at ten top companies to be $50,000.

The data on special projects fees, those outside the scope of typical board or committee work, should only improve in future years due to the new stringent SEC regulations on disclosing pay and benefits. The regulations, passed in August 2006, require companies to disclose in 2007 proxy statements all forms of board compensation provided to each individual board member.

"Ten companies, including Medtronic, News Corp and Whole Foods, disclosed these special fees," said Eric Winikoff, a consultant in Cook's New York office, "These substantial fees can be as much as annual cash retainers. They are another example of how companies are compensating directors who have increased time commitments and responsibilities, such as service on special committees and merger and acquisition related work."

Nine companies also disclosed additional "per-diem" fees, with a median value of $1,000 per day, payable for office or plant visits, attendance at annual shareholders meetings, or director education.

"Instead of a one-size-fits-all approach to directors compensation, companies are paying more to directors whoCothanks to reforms in corporate governance-- have greater responsibility for managing committee work and conducting independent projects," said Beverly Aisenbrey, a Managing Director at Frederic W. Cook & Co. "Audit and Compensation Committee members are paid approximately $1,250 to $13,000 more than directors who don't sit on any committees."

In addition, total compensation values indicate a leveling off of director pay, which was boosted by large cash and equity grant level increases in previous years. Consistent with Cook's prior studies, this years study again found generally higher compensation for board members at NASDAQ companies than at NYSE companies. For example, the median value of compensation for members of boards that didn't sit on committees was approximately $230,000 at NASDAQ companies, and approximately $200,000 at NYSE companies. The higher compensation for NASDAQ companies is a result of those companies delivering a higher portion of total compensation in the form of stock options.

The 2006 Frederic W. Cook & Co. study, Director Compensation: NASDAQ 100 vs. NYSE 100, found:

* Companies are continuing to abandon stock options because of FASB's mandatory expensing of stock options and a growing preference for using full-value shares to give directors a stake in the company. Stock options are used by 38% of NYSE companies and are used as the only equity award type at 6% of NYSE companies (down from 51% and 17% last year, respectively). Stock options are used by 78% of NASDAQ companies and are used as the only equity award type at 57% of NASDAQ companies (down from 82% and 62% last year, respectively).

* Board meeting fee prevalence declined slightly, for the third straight year. Some 51% of NASDAQ companies and 48% NYSE companies are paying board meeting fees, down from 54% and 52% last year for the NASDAQ and NYSE, respectively. Eight companiesCoincluding AIG, Bank of America, and Broadcom stopped providing board meeting fees and subsequently raised their annual cash retainer.

This fourth annual report on director compensation practices by Frederic W. Cook & Co. compares and contrasts the outside directors' compensation programs of the 100 largest U.S. based companies listed on the New York Stock Exchange (determined by market capitalization as of March 31, 2006) and the NASDAQ 100.

Frederic W. Cook & Co., Inc., provides management compensation consulting services to business clients. Formed in 1973, the firm has served over 1,900 corporations in a wide variety of industries from our offices in New York, Chicago, Los Angeles, and San Francisco. The firm's primary focus is on performance-based compensation programs that help companies attract and retain key employees, motivate and reward them for improved performance, and align their interests with shareholders. For more information, please visit www.fwcook.com.