Bring back health benefits for board members? Yes.

• Author: Wise, David
• Position: DIRECTOR COMPENSATION

The last several years have seen companies reduce their emphasis on benefits for their independent directors. As the pressure on executive pay has intensified, compensation committees began transitioning their executives away from certain benefit and perquisite offerings that shareholders considered excessive. Perhaps in a show of solidarity, or perhaps in response to the increased shareholder pressure, directors began paring back on their own benefits as well.

Many boards didn't complain. After all, year-over-year pay levels have increased significantly for independent directors over the past five years--much of which was driven by the increased fiduciary responsibility after game-changing laws like Sarbanes-Oxley and Dodd-Frank. However, some of this pay increase could also be attributed to restoring some of the lost "value" of these benefits while at the same time avoiding public disclosures that could be difficult to explain.

In this process of benefit eliminations, one particular benefit--that of providing a health-based offering to directors--has all but disappeared from the market. Of all of the benefits to have lost ground in the past several years, this one is perhaps the most puzzling, and is the one that companies should think the most about restoring.

The dwindling landscape for director benefits

Today, 79.3% of the companies in our most recent Hay Group 300 study, which features pay practices from the largest 300 public companies in the United States, provide at least one form of benefit for their directors. (The Hay Group 300 Study includes a proxy statement review of the 300 largest U.S. public companies; the data reflect what percentage of companies reported such perquisites in their proxy statement.) The most common provisions, with their associated prevalence within our study, are:

-- Matching Gifts, 43%

-- Spouse Travel, 16%

-- Accident/Death Insurance, 16%

-- Continuing Education Program, 16%

-- Life Insurance, 12%

-- Use of Company Products, 11%

-- Aircraft Usage, 8%

-- Tax Gross-Ups, 8%

-- Medical Benefits and Physicals, 7%

It is no coincidence that the most prevalent offering here remains matching gifts, which are viewed as altruistic in nature and therefore tend to be easier for companies to disclose. However, no other benefit is offered by more than 16% of companies.

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Reconsidering what makes sense

While executive supplemental benefits and perquisites have now been pared back substantially from...