Corporate Governance

The Director Compensation Project: Berkshire Hathaway

By Jeremy Liles

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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Berkshire Hathaway's (NYSE:BRK.B) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Director Compensation.  During 2009, Berkshire's board held three special meetings and one Annual Meeting of Directors following the Annual Meeting of Shareholders.  Each director attended all of the meetings except for William H. Gates III and Donald R. Keough, who each missed one of the special meetings.  The Audit Committee held seven formal meetings in 2009.  The Governance, Compensation, and Nominating Committee held two meetings in 2009.  Directors who are employees or spouses of employees do not receive fees for attendance at directors' meetings.  All other directors receive a fee of $900 for each meeting attended in person and $300 for participating by telephone.  Audit Committee members receive a fee of $1,000 quarterly.  Directors are reimbursed for out-of-pocket expenses incurred while attending meetings of directors or shareholders.  The Company does not provide directors and officers with liability insurance.

Director Tenure.  Mr. Warren E. Buffett, a director since 1965, has the longest tenure.  Mr. Burke, elected on December 22, 2009, has the shortest tenure.  Most of the directors sit on other boards.  Ms. Decker is a director of Costco Wholesale Corporation and Intel Corporation.  Mr. Keough is a director of InterActive Corp. and The Coca-Cola Company.  Mr. Munger is a director of Wesco Financial Corporation (80%-owned by Berkshire Hathaway), Daily Journal Corporation, and Costco Wholesale Corporation. Mr. Olson is a director of City National Corporation, Edison International, Southern California Edison and The Washington Post Company.

CEO Compensation.  Warren E. Buffett, Berkshire's Chief Executive Officer, earned a salary of $100,000 during the 2009 fiscal year.  He also received $75,000 in fees for sitting on the board of directors of The Washington Post Company, in which Berkshire has a significant ownership interest.  In addition, Berkshire provided personal and home security services for Mr. Buffett at a cost of $344,490.  Marc D. Hamburg, the Chief Financial Officer, earned a salary of $862,500 during the 2009 fiscal year, and also received $12,250 in contributions to a defined contribution plan.  Berkshire does not grant stock options to its executives.

Full post as published by The Race to the Bottom on December 01, 2010 (boomark / email).