ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, April 7, 1996 TAG: 9604050128
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: CHICAGO
SOURCE: Associated Press
Attend a meeting, get paid $109,000. Sign on the dotted line, get a fat pension plan. A growing number of Fortune 500 companies are cutting out such generous perks for outside directors and linking compensation to corporate performance.
Annual meetings this spring are bringing a fresh review of complaints voiced by small shareholders and, more recently, major institutional investors. They contend directors who receive extravagant compensation packages ``rubber-stamp'' corporate management decisions and have little stake in the company.
By paying board members with stock tied directly to the company's performance, the directors will become more independent of management and companies will lose the image of providing frivolous benefits, said Ann Yerger, director of research at the Council of Institutional Investors, which represents more than 100 public, private and union groups with a combined $900 billion in assets.
``We want directors to feel the pain if there's a problem in performance,'' Yerger said. ``If they're paid in stock, it's going to make them think like a shareholder.''
Companies are beginning to see the light, particularly after a surprisingly large number of shareholder proposals to overhaul boards won an average 30 percent approval rate last year. While they didn't pass, they did sound a wakeup call.
A panel of the National Association of Corporate Directors also recommended last summer that at least 50 percent of a director's compensation be paid in the form of stock.
A survey conducted in late 1995 by the Conference Board illustrated change is under way - 71 percent of 759 companies in manufacturing, financial and diversified services have instituted stock compensation plans for board members, the survey found.
And 17 Fortune 500 companies last year dumped outside director pension plans that sometimes paid $30,000 annually for life after just five years of board service, according to the Washington-based Investor Responsibility Research Center, a non-profit corporate research group. Another 29 companies will consider the issue this year, the group said.
``The corporate community is finally getting the message,'' said Pat McGurn, the research center's director of corporate governance services. ``Frankly, most of these directors don't care about pension plans anyway, since they have them at their primary place of employment and are usually wealthy to boot.
``So if the directors don't care about it and shareholders don't like them, what's the sense in having them around?'' he said.
Sears, Roebuck and Co. will ask shareholders at its May 9 annual meeting to approve changes in its board compensation package. It is to consider whether directors will receive a 50-50 split of cash and deferred stock while losing fees for attending meetings or sitting on committees.
The directors over the next five years would have to boost their holdings of Sears stock, and new directors would receive no pension plans. Retirement benefits for current directors would be frozen at $30,000 a year.
Sears directors had received an annual $30,000 retainer, $1,100 for each board meeting - there were 10 in 1995 - $1,100 for each committee they sat on and 100 shares of stock. They now will get a $30,000 retainer and receive $30,000 annually in deferred stock, which may actually be worth more.
``The point is, though, your pay is at risk,'' Sears spokesman Bill Parke said. ``The innovative part is your [financial] performance is based on the performance of the company.''
There wasn't a major outcry for change among Sears shareholders, but there has been at many other large companies.
The new activism follows a 1993 Securities and Exchange Commission decision to change proxy statement rules. The change allowed shareholders to offer proposals on top executive and director compensation and has led to increasing scrutiny of frills added to compensation plans as a way of luring top talent.
In 1994, median compensation for outside directors sitting on boards was $40,000, according to a survey of 647 companies by Kinder, Lydenberg, Domini & Co., a firm that collects information on publicly traded companies for institutional investors.
But Minneapolis-based United HealthCare Corp., which operates health maintenance organizations, paid each outside director $981,500 - or $109,000 per meeting for nine meetings - in 1994. The company has since greatly reduced its compensation plan.
In exchange for a pension and other compensation, an outside director spends an average of 163 hours a year on board matters, including preparation for and travel to meetings, according to a survey by Korn/Ferry International, a New York executive-recruiting firm.
Companies have contended that competitive pressures force them to offer incentives to get the best people, but the recent activism is putting that excuse out to pasture.
LENGTH: Medium: 91 linesby CNB