Pensions for directors: the way it was.

• Position: DIRECTOR COMPENSATION

Ed. Note: The following commentary is drawn from "Director Retirement Benefits," a research report issued by the Conference Board in 1996.

According to the Conference Board's historical data on outside director compensation, in 1975 only two of the approximately 1,000 companies responding to our survey reported that they paid a pension to retired directors. In 1985, 145 (of about 800) companies reported that they had a pension or retirement plan; by 1995 this number had nearly doubled to 283 companies.

Pensions have been defended by some as a competitive enticement for luring new independent directors. Ironically, they appear to have originally evolved as a means for easing out older, less active board members.

In 1995, the issue of paying retirement benefits to directors rose to the forefront of shareholder proxy initiatives. By February 1996, the Investor Responsibility Research Center (IRRC) reported that "limits on pensions for nonemployee directors is the second most popular issue at the moment, with 45 resolutions filed to date, two omitted, and eight withdrawn." A 1996 survey conducted by the American Society of Corporate Secretaries revealed that more than 50 companies had decided to eliminate or restrict retirement plans for outside directors. Examples:

* American Express: $30,000 annual benefit, 5 years or more service, payable for number of years' service or until death, whichever is earlier. Terminated for directors elected after March 31,1996.

* Baxter International: 100 percent of annual retainer paid each year, for every year of board service to directors retiring after 65 and after at least 5 years' service. (In 1995 annual benefit was $25,000.) Terminated February 1995.

* Goodyear Lifetime benefit of $20,000 a year. Terminated February 1996.

* Eli Lilly: $30,000 annual retainer, benefit payable for life if 15 or more years of service; 5-14 years' service, benefit for period of service. Terminated January 1996.

Thirty years ago, when retirement policies for outside directors first emerged, they appear to have been instituted not for compensation purposes but primarily in response to corporate governance concerns that boards be filled only with...