Making an Issue of Director Compensation

Director compensation, like its higher-profile companion, executive compensation, is an important corporate governance issue today. With increased responsibilities and perceived greater risk of personal liability,[FOOTNOTE 1] board members are working harder, are serving on fewer boards, and are more committed to their directorships than ever before. Compensation for outside directors is generally increasing and appropriate disclosure is essential.

As director compensation moves on the board agenda from a housekeeping item to a central governance topic, compensation committees are working to craft appropriate policies on director compensation and related disclosure. The Council of Institutional Investors and other shareholder advisory organizations have recognized the need for adequate director compensation and have published guidelines. In January, when the Securities and Exchange Commission released a rules proposal on executive compensation disclosure, they also addressed compensation disclosure for directors.[FOOTNOTE 2]