Ask FERF about ... board of directors' compensation.

By the time this article goes to press, many companies will be conducting (or will have conducted) their annual shareholders meetings. Since March 2007, many publicly held companies have been filing their definitive proxy statements with the U.S. Securities and Exchange Commission (SEC).

Included in those filings are the long-anticipated executive compensation disclosures--which significantly changed what had been previously required and include updated disclosures for board of director pay.

This is perhaps why director compensation was top of mind among FEI members in the March 16 issue of FELIX PC, the Financial Executives List Exchange for Private Companies. In this FEI email-based discussion forum, a member from a private company asked: "How much are privately held companies paying their outside directors in fees? How frequently are these updated or revised?"

The question garnered a record number of responses in comparison to inquiries on other subjects in past issues. Though fees will vary based upon the size and stage of a privately held company, here's what members had to say:

* Four members cited four different per-meeting fees, with the low at $750 (quarterly) and the high at $2,500 (semiannual). One of those companies also pays $300 for additional conference calls.

* One company had been advised that its directors should be paid for estimated hours of board meetings based on its CEO's hourly rate.

* Two of those companies also provided for annual retainers of $5,000 and $15,000, respectively. The company that pays the $15,000 retainer also gives its chairman an additional $10,000.

* For a Silicon Valley start-up that is in the pre-product stage, there is generally no monthly stipend. However, stock options are granted that range from .25 percent to .50 percent of the fully diluted shares. Also, meeting travel expenses are reimbursed.

* One company has established a four-year target of 0.5 percent of stock in the form of options for its directors. Options are granted annually to get to this target. Special grants for recruiting and serving as interim management are also provided.

* Another member who recently attended a National Association of Corporate Director (NACD) certification course provided the following information:

Company Revenues          Total Compensation  Stock Option %

$50-$500 million           $74,332            26
$500 million-$1 billion   $110,500            26
$1 billion-$2.5 billion   $132,760            29
$2.5 billion-$10 billion  $157,165            21
Over $10 billion          $204,975            16

The referenced figures for total compensation are in line with 2006 research published by compensation consultant Frederic W. Cook & Co. Inc., based on public filings from 200 companies. In its October 2006 study, total median compensation for board members was $232,035 for companies listed on Nasdaq and $199,448 for New York Stock Exchange companies. Stock options decreased for NYSE companies versus their Nasdaq counterparts.

The average pay mix for Nasdaq versus NYSE companies follows:

Compensation Element  NYSE  NASDAQ

Cash                  36%   26%
Stock awards          49%   18%
Stock options         15%   56%

According to the Cook study, the median board meeting fee is $2,000, which is consistent with the high end cited in the FELIX PC responses. Another consistent practice for both public and private companies is granting awards for special projects which, per the report, could include, but are not limited to:

* Work performed on special one-time committees, as denoted by the board;

* Additional responsibility assumed by directors in relation to merger and/or acquisition activity; and

* Work conducted to investigate certain events/activities at the company. Of the 10 companies that disclosed one-time awards to Cook researchers, the median one-time fee was $50,000.

Finally, both public and private companies are paying higher retainers for committee chairs. Median committee fees for Nasdaq ranged from $5,000 (compensation or nominating and governance committee) to $10,000 (audit committee). For NYSE, median fees were at $7,500 for audit committees and $9,000 and $8,500 for compensation and nominating/governance committees, respectively.

However, compared to the two FELIX responses cited earlier at private companies, annual cash retainers are significantly higher for Nasdaq-listed companies, at $65,000, and for NYSE-listed companies at $37,500. (Note: the FELIX responses are not statistically based.)

For more detail on the director compensation studies, visit the NACD and Cook websites. To subscribe to FELIX PC, send an e-mail to [e-mail].

Cheryl de Mesa Graziano, CPA (cgraz [e-mail]), is Vice President, Research and Operations at Financial Executives Research Foundation (FERF).

contributed by FERF