After ConAgra Foods' board slashed the company's dividend by 34 percent as part of a restructuring plan, a few shareholders suggested the board should also feel the pain and slash its own pay by roughly one-third.
Not surprisingly, the suggestion shareholder Don Hudgens made during the 2006 annual meeting didn't fly even though former ConAgra chief executive Mike Harper supported the idea. Board chairman Steven Goldstone was quick to defend what ConAgra pays its directors, saying it is difficult to find and keep good people on the board.
Board pay has been steadily increasing in recent years as new regulations increased the workload for directors and the use of compensation consultants became more common. And the only check on board member pay is shareholder outrage, which compensation experts say is rare, so the increases are likely to continue.
Half of the directors included in a recent study of director pay made more than $100,031 annually, and that was 12 percent higher than a year earlier, according to watchdog group The Corporate Library.
"There are extremes, but there are usually extraordinary reasons for those extremes," Researcher Paul Hodgson said. For example, the highest-paid directors are often former CEOs. In 2006, Allen Wise, former CEO of Coventry Health Care, received $7.7 million, and Dennis Horowitz of Wolverine Tube Inc. received $5.94 million; both totals include compensation that's part of their retirement packages.
Half of all directors made between $52,479 and $165,401, with bigger companies generally paying more, Hodgson said.
The Corporate Library's report is based on the compensation disclosed in documents public companies filed with the Securities and Exchange Commission before last October. So the total compensation figures for directors can be skewed by the value of stock options that vest during the year even though the options may have been awarded to directors earlier.
For example, most of the $28.5 million — about $23.8 million — in compensation Valero Energy Corp.'s William Greehey received in 2006 came from stock grants and stock options the company gave Greehey when he was CEO that vested while he led the board. Greehey received another $14.9 million in compensation in 2007 even though he retired 17 days into the year; most of that compensation was also tied to Greehey's CEO tenure.
Hudgens said he simply wants to make sure ConAgra performs well, so the level of board pay will be justified. When he suggested cutting board pay, ConAgra's net income had dropped from $811 million in 2004 to $534 million in 2006 and the company had just started restructuring.
"There's nothing wrong with making a lot of money if they produce results," Hudgens said.
Non-employee directors at Conagra Foods Inc. receive a $50,000 retainer and $1,500 for each meeting attended; directors who lead committees receive an additional $75,000. Each non-employee director receives a grant of 1,800 shares of stock and 9,000 stock options every year. Goldstone receives $500,000 in stock options each year for serving as ConAgra's chairman.
Director pay is driven higher by the consultants companies hire to make sure the amount they pay their board members is keeping up with similar-sized companies.
"That is an inevitable effect to using surveys," Hodgson said. "If everybody wants to pay the median, it goes up every year."
Legendary investor Warren Buffett decried the use of compensation consultants to set director pay in his letter to Berkshire Hathaway Inc. shareholders last year.
"Surprise, surprise director compensation has soared in recent years, pushed up by recommendations from corporate America's favorite consultant, Ratchet, Ratchet and Bingo. (The name may be phony, but the action it conveys is not.)," wrote Buffett, who has served on a number of boards.
But Clarke Murphy, managing director at executive recruiter Russell Reynolds Associates, said directors usually decide to serve on a company's board because they have an interest in the industry or company and aren't trying to get rich.
"People are not joining boards because of the compensation," he said.
Many corporations and some compensation consultants say director pay is growing partly because of a shortage of qualified candidates, but not everyone is convinced there is a shortage.
Hodgson said about 19 percent of the board members in the Corporate Library's report serve on more than one corporation's board. If other kinds of boards, like nonprofit and university boards, are included, then about 55 percent of the directors serve on more than one board, Hodgson said.
A smaller group of more than 300 of the 22,000 directors in the report served on four or more boards.
"There are still some over-busy directors, but it's a smaller proportion now than it was in the past," he said.
Murphy said there are definitely fewer board members serving on multiple corporate boards today. The governance committees Murphy helps find new board members have made it clear they're not interested directors who are overscheduled.
"They don't want to hear about candidates for boards who are already on three existing boards."
And most companies don't want their own executives serving on more than one outside board.
Executive compensation consultant Gerard Leider said there is a shortage of good candidates for director jobs partly because fewer directors are serving on several boards. Some companies have also limited the number of boards their directors can serve on, and some directors have cut back because the demands of the post have increased.
Being a corporate director today brings potential liability because of the Sarbanes-Oxley corporate reform law and a workload of 200 to 225 hours a year, said Leider, who is with Hewitt Associates. Previously, board members worked about 150 hours a year, he said.
Directors can be sued over a company's financial results, especially if the company misrepresented its results or made certain mistakes in official filings.
Over the past five years, the time commitment for public company boards clearly has risen as the new corporate accountability rules took effect, Murphy said. He estimated the workload for members of compensation and governance committees has doubled since six years ago, and the workload for audit committee members is roughly triple. Most of the added workload is related to preparation for meetings, especially committee meetings.
"I'm not sure it's as cushy as you think it is," Leider said.
Directors have to travel to meetings that may start very early and continue late into the evening, and may also have additional responsibilities to prepare presentations and organize agendas for meetings. And directors who lead committees have added responsibilities.
Leider doesn't expect directors to face a pay cut anytime soon.
"I have a hard time believing it is going to plateau," he said.