Corporate Boards Logged More Time in 2003, Compensation Declines
In the wake of corporate scandals, the new Sarbanes-Oxley law and other governance and accounting requirements, nearly two-thirds of corporate boards of directors spent more time on their duties during the past year, according to the PricewaterhouseCoopers Management Barometer.
Despite the added workload, board compensation increased at only 20 percent of companies, and remained the same at 47 percent. The remainder was either uncertain about board compensation or did not report. For those receiving a raise, the average increase was 17.9 percent.
The survey of senior executives at 177 large, U.S. multinational companies found that 62 percent of boards increased the time and effort spent on corporate governance over the past year—including 30 percent that spent much more time; and 32 percent, somewhat more. Fourteen percent spent about the same amount of time, and two percent less time. The remainder did not report.
Eighty-nine percent of boards receiving increased compensation had put in additional time and effort. However, only 29 percent of boards putting in more time were rewarded with increased compensation.
Looking ahead, only 10 percent of companies plan to increase board compensation over the next 12 months, with an average increase of 10 percent. Compensation will stay about the same for 42 percent, and none will receive a pay cut. The remaining 48 percent were either not certain or did not report.
Boards at 94 percent of companies planning an increase had put in added time and effort, but only 16 percent of boards putting in more time and effort are slated for a raise. Of those, more than half received a raise in the past year.
Between the past year and the next 12 months, a net of only 24 percent of boards will have received increased compensation, 92 percent of which put in added time and effort.
Increased board responsibilities had a mixed impact on recruiting new board members. While 28 percent reported no problems, 18 percent described recruiting as difficult. Twenty-seven percent did not need to recruit new members, and 27 percent did not report.
"Although there is a substantial amount of interest about increased compensation to boards, few companies are actually making the commitment to raise board pay. I don't expect this to continue," said Garrett Stauffer, leader of PricewaterhouseCoopers' US Corporate Governance Practice.
Increased Commitment for Audit Committees
For board audit committees, whose duties have been significantly increased by the Sarbanes-Oxley Act, 68 percent spent more time, including 42 percent much more time, and 26 percent somewhat more, the survey found. Five percent spent about the same time, and none less time. The remainder did not report.
Despite the added workload, total compensation for audit committee members stayed about the same for 41 percent of companies surveyed. Only six percent received greatly increased compensation; and another 16 percent, somewhat increased remuneration. None were paid less, 14 percent were not certain, and 23 percent did not report. For those with an increase, the average increment was a substantial 26.2 percent.
Ninety-seven percent of audit committees receiving increased compensation had put in greater time and effort, but only 31 percent of those putting in more time and effort were rewarded with increased compensation.
For the year ahead, 10 percent of companies plan higher compensation for audit committee members, with an average raise of 9.7 percent. Compensation will stay about the same for 42 percent, and none will receive a pay cut. The remainder was either not certain about future increases or did not report.
Ninety-four percent of audit committees slated for an increase had devoted greater time commitment and effort. However, only 14 percent of audit committees putting in more time and effort are to receive a raise, including six percent that got one in the past year.
Between the past year and next year, a net of 28 percent of audit committees will have received increased compensation, including 95 percent that have logged additional time and effort.
"The new regulations have increased the time demands for audit committee members even more than for other directors," said Stauffer. "Directors generally are not serving on boards because of the pay. However, with the time commitment for board service increasing, compensation for directors will have to reflect the amount of effort involved."