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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: Alcoa

By Laura Almquist

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This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Alcoa’s (AA-NYSE) 2008 proxy statement.

Name	Fees Earned or Paid in Cash ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Kathryn S. Fuller	188,125	—	—	—	5,006	193,131
Carlos Ghosn	188,125	—	—	—	—	188,125
Joseph T. Gorman	215,000	45,905	—	—	481	261,386
Judith M. Gueron	215,000	91,472	—	—	6,340	312,812
Klaus Kleinfeld	196,125	—	—	—	—	196,125
James W. Owens	190,875	—	—	—	5,619	196,494
Henry B. Schacht	215,000	9,876	—	—	9,943	234,819
Ratan N. Tata	144,375	—	—	—	—	144,375
Franklin A. Thomas	215,000	93,512	—	—	9,939	318,451
Ernesto Zedillo	198,875	—	—	—	3,949	202,824

Director Compensation . Alcoa's board met seven times last year, the average meeting attendance was 95%. All directors received more than $100,000 in director’s fees paid in cash. Effective January 2007, the annual retainer for all directors is $192,500. The non-employee directors as a group averaged $225,754 in total compensation for their services. As can be seen in the table, much of their compensation came from directors fees paid in cash. The directors do not receive stock awards for their service.

Director Tenure . The non-employee directors have an average tenure of eleven years. Franklin Thomas, the lead independent director, has the longest tenure by far at thirty-one years. Nine of the directors also sit on other boards, including two directors who both sit on Citigroup’s board.

CEO Compensation . The CEO, Alain J.P. Belda, received $25,931,201 in total compensation last year, a relatively small portion of which came in the form of cash ($1,457,500). Over $650,000 of Mr. Belda's compensation was "other compensation." This included a little over $100,000 for personal aircraft usage. Almost 75% ($19,401,041) of Mr. Belda’s compensation came from stock and options awards, the value of which is dependent upon company performance in its industry.

Full post as published by The Race to the Bottom on May 04, 2008 (boomark / email).