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How would you like to earn $21,000 an hour for a part-time job?
In 2006, the latest year for which numbers are available, 85 corporate directors took home more than $1 million, according to analysis by The Corporate Library, a corporate-governance research firm. They typically get this juicy pay for attending about 10 meetings a year, joining in on some conference calls and sometimes consulting on projects.
Many members of this elite group are founders or former executives, or serve as chairmen of the board, and some argue they deserve those checks.
Board members are supposed to represent shareholders' interests in guiding a company. Instead, as the numbers show, they're often enriching themselves at shareholders' expense.
'A dream job for any American'
Take real-estate magnate Sam Zell, who ranks 158th on Forbes' list of the world's billionaires. He's worth an estimated $5 billion.Thanks to his part-time position as chairman of the board at Equity Residential (EQR, news, msgs), an apartment-building developer that he helped found, Zell continues to accumulate wealth. In 2006, Equity Residential rewarded Zell with $3.2 million worth of options and restricted stock.
The Equity Residential board held nine meetings that year. Assuming they were full-day meetings and throwing in a few weeks for prep time, Zell earned about $21,000 per hour for this position. That's a well-paid gig even as chairmanships go. Directors at Fortune 500 firms who were also chairmen got a median of $288,000 in 2006, according to Equilar, an executive-compensation research firm. That was more than five times the median income that U.S. households brought home that year.
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"That's a dream job for any American in this economy," says Daniel Pedrotty, a corporate-governance expert at the AFL-CIO Office of Investment. "This just shows directors have their hand in the piggy bank as much as anyone else."
Zell also has a retirement agreement for the board post that will pay $500,000 a year for 10 years unless he is fired for cause.
"The board believes that the compensation is fair and appropriate for Mr. Zell as company founder, chairman and visionary," Equity Residential spokesman Marty McKenna says.
The company's stock has done well since it hit the market in 1993, with a 695% gain including dividends. It gained about 25% during 2006, though it gave up all that and more in 2007.
The $7.7 million goodbye
These elite directorships also seem to be a good way to pull down big bucks after retiring as chief executive. Let's look at Coventry Health Care (CVH, news, msgs):Director pay at Coventry, a health insurer, is already high. Nonemployee directors got $225,000 each in 2006 for attending five meetings. In contrast, directors at S&P 500 Index ($INX) companies got an average of $196,780 in compensation in 2006, including cash, stock and other compensation, according to Equilar.
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But former Coventry Chief Executive Officer Allen Wise did much better. Wise has been a director since 1996 and became chairman after stepping down as CEO in 2004. In 2006, the company gave him $7.7 million as he worked the part-time job. He also got $564,000 worth of use of the corporate jet, $20,600 to pay for a car he uses and $77,400 to help pay his taxes on those two perks. He also received $293,700 from a company match on contributions to a retirement plan.
"We had no idea that some directors are so handsomely paid," says Rich Ferlauto, the director of pension and benefit policy for the American Federation of State, County and Municipal Employees.
Ostensibly, Wise got this pay for his second year as a director not for duties associated with that role but because he was helping the new CEO, Dale Wolf, learn the ropes.
Shareholders might scratch their heads about this. First, they might wonder why Wolf needed help in 2006, his second year in the job. The company paid him more than $12 million that year. Next, they might have expected Wolf to have learned enough about the job in advance, since he had served as finance chief, treasurer and executive vice president for eight years before becoming CEO in 2005.
The company declined to comment on the details of Wise's pay as director. Corporate filings say the payments are part of agreements struck as he stepped down as chief.
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