Directors' compensation increasingly tied to companies' performance.

NEW YORK--(BUSINESS WIRE)--Nov. 2, 1994--Companies increasingly offer their outside directors compensation packages with ties to the companies' performance, similar to trends in top executive compensation, according to two KPMG Peat Marwick Performance and Compensation Management Consulting practice studies of 305 top public financial, manufacturing and services companies in 14 industry groups.

The studies, released Wednesday, used 1994 proxy statements to examine directors' annual retainers, meeting fees, committee fees, method of payment, retirement and deferred-compensation plans, and stock-based compensation.

Total director board compensation averaged $31,951 in financial companies and $33,453 in manufacturing and services companies. Average compensation was highest in information, communications ($36,270), food, beverages, tobacco ($36,115) and energy ($35,673).

Since the last KPMG survey of director compensation, in 1992, compensation rose by approximately 15 percent among financial companies and 5 percent among manufacturing and services firms.

``As corporations place greater demands on directors, both in terms of time and accountability, they are willing to enhance compensation for board service,'' said Peter T. Chingos, national director of Performance and Compensation Management Consulting, KPMG Peat Marwick.

``Not only are directors' fees rising in response to the greater risks and efforts required, but directors' compensation programs now have both cash and equity elements, plus deferred-compensation and retirement plans similar to what is offered to company executives,'' he continued.

Eighty-nine percent of financial companies and 85 percent of manufacturing and services companies paid directors both an annual retainer and a per-meeting fee. Directors received additional compensation for serving on board committees. The surveys examined fees for members of audit committees, which are often the highest- paying, and compensation committees, which are found at virtually all companies.

Stock compensation, typically through stock options or restricted stock awards, has risen dramatically in the last few years. Fifty-eight percent of the financial companies offered directors some form of stock compensation in 1994, compared with 39 percent in 1992. Among manufacturing and services companies, the figures were 61 percent in 1994 and 47 percent in 1992.

Most option awards are annual and cover from 1,000 to 2,000 shares; restricted stock awards confer the full value of the shares and are usually for a fewer number of shares (e.g., 250 each year). Some companies allow or require directors to take all or part of their cash compensation in stock or stock options. ``Shareholders and institutional investors like stock compensation because it makes directors think and act like owners,'' Chingos said.

Deferred compensation, allowing directors to defer some or all of their retainer and meeting fees until they resign or retire from the board, is offered at 57 percent of the companies surveyed, similar to 1992 figures.

Many companies also provided their directors with retirement plans -- 52 percent of financial companies and 59 percent of manufacturing and services companies. Most require the directors to serve for at least five years.

The financial survey covers 105 of the largest publicly held banks, thrifts, insurance companies and diversified financial companies.

The manufacturing and services survey covers 200 of the largest publicly held companies in 10 industry groups: automotive and farm equipment; chemicals; computers and office equipment; electrical and electronics; energy; food, beverages and tobacco; health care and pharmaceuticals; information and communications; retail; and transportation.

KPMG Peat Marwick LLP is the U.S. practice of KPMG, the global leader among professional-services firms. KPMG has more than 6,000 partners and 73,000 professionals serving clients through 1,100 offices in 131 countries.

In the United States, KPMG partners and professionals deliver a wide range of value-added assurance, tax, international and performance-improvement services to clients doing business in the following markets: financial services; health care and life sciences; information, communications and entertainment; manufacturing, retailing and distribution; and public services.

CONTACT: KPMG Peat Marwick, Los Angeles 

Debra Weiss, 213/955-8992