Are directors underpaid? How do you put a value on these vital assets? The marketplace of governance talent has its own distinctive set of calculations and considerations--which is why we come up with 'yes,' 'no' and 'maybe' answers.

• Position: DIRECTOR COMPENSATION - Survey

The pay has not been keeping pace

Corporate directors today, it can be argued, are a bargain.

BY DOUG FRISKE

TOWERS WATSON'S most recent analysis of director compensation trends at Fortune 500 companies found that median total compensation for outside directors crossed the $200,000 threshold for the first time last year (hitting $200,698, to be exact). Our analysis also shows that the growth in directors' pay ground to a virtual halt during the Great Recession, rising just 1% in fiscal 2009 as many companies froze or even cut directors' pay during a period of financial uncertainty and austerity.

[ILLUSTRATION OMITTED]

This follows a number of years in which pay for directors grew nearly 10% annually, according to Towers Watson data. That growth in director pay coincided with significant changes in corporate governance and the role of outside directors over the past decade. Beginning with the dot-com bubble and continuing through the Sarbanes-Oxley (SOX) reforms and the financial meltdown, the past decade has been marked by a continuing shift toward a more balanced and collaborative governance model in which an engaged board of directors plays an increasingly prominent role.

[ILLUSTRATION OMITTED]

On a very personal level, this shift has greatly increased the demands and commitment required of directors in three areas:

* Emotional: Boardroom discussions today are more heated and intense than a decade ago, often pitting directors and executives--and directors among themselves--on opposite sides of key issues.

* Reputational: The stakes involved in serving as corporate fiduciaries are higher today. Cases like Enron and financial institutions in the recent market meltdown underscore the degree to which directors' reputations are at risk.

* Temporal: The amount of time required of directors has gone up significantly as the issues and role of key committees (e.g., audit under SOX, compensation under Dodd-Frank) have become more complex. The 2010 NACD Public Company Governance Survey, for example, shows that board meetings are now longer and that total board meeting hours jumped by 25% in 2010. And this doesn't reflect the additional time demands on directors outside of formal meetings in preparation time, travel, conference calls, and the like. Growing shareholder activism regarding executive compensation and other topics, as well as the likelihood that some directors will play a more active role in communicating with shareholders in the coming say-on-pay era, can only increase the demands on directors' time.

These data force the question: Are directors today paid appropriately, given the growing demands and complexity of the role? My experience has been that few directors serve for the compensation. Most accept corporate directorships for other reasons, including to fulfill a sense of service, challenge themselves with new thinking, and make connections with other smart businesspeople. However, like all of us, directors want to have the sense that they're treated fairly and compensated appropriately for their time, trouble, and the risks they assume. While director compensation rose steadily in the early 2000s, one could argue that more recently director pay has not kept pace with the demands of the role.

Coupled with the limitations many companies have placed on the number of outside boards active CEOs may serve on, the added scrutiny and risks of the role may mean that the demand for qualified directors increasingly outstrips the supply, putting further upward pressure on compensation. And, with experienced candidates increasingly scarce, companies may turn to other potential sources of talent (e.g., lawyers, consultants, and other advisors) to fill the role. At contemporary hourly rates charged by leading professional service firms, assessing the cost of directorship on a time-and-expense basis might well exceed current market norms for directors.

Thus, it could be argued that, at slightly over $200,000 at the median, corporate directors today are a bargain in view of the changing nature of the role, the constraints on the supply of available candidates, and the cost of alternative sources of talent. As with all such analyses, however, the talent equation varies depending on the individual. Experienced directors who perform their roles in a highly engaged and productive manner are a good value for shareholders, while others may be overpaid for their contributions on multiple levels.

It's difficult to see exactly where director pay trends will head in the future. However, the evolving governance environment is certain to play a key role in the process.

Doug Friske is the global leader of Towers Watson's Executive Compensation business (www.towerswatson.com).

Hardly premium pay for the job

Frankly, we're stumped as to why board member compensation has not kept up.

BY RANDOLPH O. RAMIREZ

BOARD MEETINGS TODAY are much different from board meetings 10 years ago. Today it is common to find full-day meetings with different breakouts for board sessions, committee meetings, and general meetings. In the niche sphere of compensation, we often find ourselves in board meetings today discussing compensation risk, disclosure responsibilities, management and shareholder alignment, executive benchmarking (with a lot of discussion focused on selecting peer companies), legislation that could affect compensation planning (such as Dodd-Frank), performance measurement, and goal setting for the next performance year. And on the heels of those discussions, we often watch as the board engages in detailed discussions with the company's executives on operations, investments, and strategy that could affect performance management. That's a lot for a board to cover in a series of 30- to 60-minute meetings.

[ILLUSTRATION OMITTED]

And while these discussions are going on, each board member must be thoughtfully engaged. When it comes to compensation, we find directors asking detailed questions on why we did something a certain way, how we did it, or what our philosophy was in a certain approach of a study we conducted.

Boards...