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Mellon Survey: Board Member Responsibility and Pay Increasing
Dramatically
-- 'Reform is the norm' in today's corporate boardrooms --
RIDGEFIELD PARK, N.J., Oct. 13 /PRNewswire-FirstCall/ -- New governance
practices have reshaped the boardroom of Corporate America, with significant
increases in director pay, responsibility and accountability. These are among
the results of the annual "Board of Directors Compensation and Governance
Practices Survey" released today by Mellon Financial Corporation's Human
Resources & Investor Solutions (HR&IS) business. The study, completed in the
third quarter of 2004, reports on the board practices of more than 200
companies.
Mellon's survey shows that many companies have adopted significantly more
reforms and made a much wider array of changes since last year.
Boards are clearly becoming more active. Board meetings are lasting longer;
fully a third of survey participants report day-and-a-half or two-day sessions.
Equally notable is the increase in the number of board committee meetings. On
average, audit committees are meeting eight times a year (double the number of
two years ago), and compensation committees typically meet five times, up from
four last year.
Board structure has also changed dramatically. While few of last year's survey
participants reported having a lead director, 48 percent have one this year.
Nomination and governance committees are proliferating, rising from 47 percent
in 2003 to 75 percent in 2004. Most boards -- 83 percent -- now report they
conduct meetings without management being present, up from 55 percent last
year.
"Commitment to reform has gone well beyond the tentative measures we saw a year
ago," said Todd McGovern, a principal in Mellon's compensation practice and
corporate governance practice leader. "Boards seem to be increasingly committed
to taking a more active and accountable role in corporate governance."
More Companies Holding Directors Accountable
Just 17 percent of survey participants conducted director performance
evaluations a year ago; that number has now more than doubled to 36 percent.
While inside directors were almost entirely free from any evaluation process
last year (10 percent), more than a quarter of surveyed companies now include
them. The practice of evaluating the performance of committee members also
doubled in the past year from 22 percent to 45 percent.
Total Compensation Increases
Total compensation for board members has increased between 20 and 35 percent
because of their increased accountability. Actual increases depend on the
methodology used to value stock options; increases would be even greater except
for the effect of relatively low stock prices.
Other findings of Mellon's survey include:
- Almost 100% of survey participants now pay board and committee chairmen
more than committee members;
- 41 percent of companies differentiate chairmen retainers by committee,
with the audit committee typically at the top of the scale. Only 21
percent made this distinction in 2003;
- Equity compensation is offered to directors by more than 90 percent of
the survey participants. However, the number of companies granting
stock options declined, from 93 percent last year to 82 percent this
year; and
- 37 percent of companies now require directors to own company stock,
increasing from 21 percent last year.
The breadth and depth of these changes indicate that board reform has taken
root and is likely to accelerate further. "Many boards have been so focused on
dealing with critical issues like executive compensation, that they have had
relatively little time to take action on their own pay practices," said
McGovern. "As they get their priorities in order, it is likely that we will
see even more fundamental change in the coming year."
Human Resources & Investor Solutions is the worldwide human resources and
shareholder services business of Mellon Financial Corporation, a global
financial services company. Headquartered in Pittsburgh, Mellon is one of the
world's leading providers of financial services for institutions, corporations
and high net worth individuals, providing institutional asset management,
mutual funds, private wealth management, asset servicing, human resources and
investor solutions, and treasury services. Mellon has more than $3.6 trillion
in assets under management, administration or custody, including more than $675
billion under management. Its asset management companies include The Dreyfus
Corporation and U.K.-based Newton Investment Management Limited. News and
other information about Mellon is available at http://www.mellon.com/ .
An executive summary of Mellon's "Board of Directors Compensation and
Governance Practices Survey" is available to the media by contacting Ed
Gadowski at (201) 373-7336. It is available to other interested parties by
contacting Eela Javid at (415) 617-3920.
DATASOURCE: Mellon Financial Corporation
CONTACT: Ed Gadowski of Mellon Financial Corporation, +1-201-373-7336,
or
Web site: http://www.mellon.com/