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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: United Technologies

By Rebecca Rian

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This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

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 $100,000 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, 4200(a)(15), 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 known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from United Technologies' (UTX-NYSE) 2008 Proxy Statement.

Name	Fees Earned or paid in cash ($) ¹	Stock Awards ($) ²	Option Awards ($) ³	Non Equity Incentive Plan Compen-sation ($)	Change in Pension Value and Nonqual-ified Deferred Compen-sation Earnings ($)	All Other Compen-sation ($) ⁴	Total ($)
Louis Chênevert	--	--	--	--	--	--	$0
George David	--	--	--	--	--	--	$0
John V. Faraci	$100,000	$180,913 ⁽⁵⁾	--	--	--	$1,068	$281,981
Jean-Pierre Garnier	--	$230,000	--	--	--	$1,068	$231,068
Jamie S. Gorelick	--	$220,000	--	--	--	$12,440	$232,440
Charles R. Lee	$92,000	$138,000	--	--	--	$1,068	$231,068
Richard D. McCormick	--	$250,000	--	--	--	$25,573	$275,573
Harold McGraw III	--	$259,861 ⁽⁵⁾	$35,885	--	--	$1,068	$296,814
Richard Myers	$100,000	$176,106 ⁽⁵⁾	--	--	--	$1,068	$277,174
Frank P. Popoff	--	$260,000	--	--	--	$1,068	$261,068
H. Patrick Swygert	--	$250,000	--	--	--	$17,601	$267,601
André Villeneuve	--	$250,000	--	--	--	$12,898	$262,898
H.A. Wagner	--	$260,000	--	--	--	$1,068	$261,068
Christine T. Whitman	$88,000	$171,861⁽⁵⁾	$35,885	--	--	$610	$296,356

Director Compensation. The board met seven times during 2007. Each director attended at least 75% of the meetings. Although no directors received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $226,794 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules. Providing such a large portion of director’s fees in stock allows United Technologies to pay its directors handsomely while saving cash and complying with the exchange rules at the same time.

Director Tenure. On average, the non-employee directors have served on the board for over 7.5 years. H.A. Wagner, the lead independent director (now retired), had a fourteen year tenure. Many of the directors also sit on other boards. One director alone sits on the boards at Aon Corporation, Deere & Company, and Northrop Grumman.

CEO Compensation. One final point of interest is the compensation paid to the CEO, George David. He was paid $38,073,226 last year, a relatively small portion of which came in the form of direct salary ($1,883,333). The majority of his compensation was stock and options awards worth $19,781,120, and a cash bonus of $7,480,455. Additionally, Mr. David benefitted from the increase in pension value and nonqualified deferred compensation earnings of $8,285,295 and "other compensation" of $643,023.

Full post as published by The Race to the Bottom on April 28, 2008 (boomark / email).