Corporate Governance

The Director Compensation Project - Proctor & Gamble

By Patrick Wagner

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010's Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 Proctor & Gamble's (NYSE:PG) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Director Compensation.  During Proctor & Gamble's fiscal year 2009, ending on June 30, 2010, the company held eight Board of Director meetings and 22 Board Committee meetings.  All directors attended greater than 90% of the meetings of the Board and respective Board Committees.  Each non-employee director of Proctor & Gamble receives an annual retainer of $100,000, $2,000 meeting fee for every Committee meeting attended, and an annual grant of $125,000 in fair market value of the company's stock.  Each Committee Chairperson receives an additional annual retainer.  The Board of Directors, at their June 8, 2010 meeting, approved proposed changes to their compensation package, increasing their annual grant of stock and removing the $2,000 meeting fee.

Director Tenure.  Mr. Cook held the longest tenure, having been a director since 2000.  Ms. Braly is the Chair of the Board and holds an executive position with WellPoint, Inc.  She also has held an executive position with Blue Cross Blue Shield of Missouri from 2003 to 2005.  Mr. Chenault also serves at other companies in executive positions and as a director.  He is currently the Chief Executive Officer of American Express Company and a director of International Business Machines Corporation.  Mr. Zedillo currently serves as a director of Citigroup, Inc. and Alcoa Inc. and served as the President of Mexico from 1994 to 2000.

CEO Compensation.  Robert A. McDonald served as Proctor & Gamble's President and Chief Executive Officer during the 2009 fiscal year and earned $13,115,228 in total compensation.  As part of his compensation package, Mr. McDonald may bring a limited number of guests along with him while traveling on the company aircraft.  Mr. McDonald is the only executive officer allowed to use the company aircraft solely for personal use.  Dimitri Panayotopoulos served as Proctor & Gamble's Vice Chairman of Global Household Care during the 2009 fiscal year and earned $6,343,477 in total compensation.  Mr. Panayotopoulos is only permitted to use the company aircraft to travel to Board meetings and can use the aircraft for personal use only on a space available basis and if the travel is to a destination the plane is already scheduled to go for a Board meeting.

Full post as published by The Race to the Bottom on December 11, 2010 (boomark / email).