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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: Travelers Companies

By Justin Loyola

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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 Travelers Companies’ (TRV-NYSE) 2008 proxy statement:


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
A.L. Beller	40,055	83,333	0	0	123,388
J.H. Dasburg	110,000	91,667	0	0	201,667
L.B. Disharoon	26,813	0	2,324	11,252	40,389
J.M. Dolan	60,000	91,667	0	0	151,667
K.M. Duberstein	60,000	91,667	0	0	151,667
L.G. Graev	73,352	91,667	0	0	165,019
P.L. Higgins	40,055	83,333	0	0	123,388
T.R. Hodgson	80,000	91,667	0	0	171,667
C.L. Killingsworth, Jr.	40,055	83,333	0	0	123,388
R.I. Lipp	60,000	91,667	0	0	151,667
B.J. McGarvie	80,000	91,667	1,796	0	173,463
G.D. Nelson	80,000	91,667	0	0	171,667
L.J. Thomsen	60,000	91,667	2,225	0	153,892

Director Compensation. Last year the board met 7 times, each director attended at least 75% of the meetings. The non-employee directors as a group averaged $146,379 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 awards allows Travelers Companies to pay its directors handsomely while saving cash and complying with the exchange rules at the same time.

Director Tenure. The average director tenure is almost seven years, while the longest is eighteen. Most of the directors also serve on other boards such as Boeing, ConocoPhillips, Barnes & Noble, Idenix Pharmaceuticals, Accenture, JPMorgan Chase, Viacom, and others.

CEO Compensation. The CEO, Mr. Fishman, was paid $19,781,031 last year, a relatively small portion of which came in the form of direct salary ($1,000,000). Performance incentives made up $7,500,000 of his compensation while stock and option awards made up $10,475,580. Mr. Fishman’s $7,500,000 performance incentive was based on his performance, demonstration of leadership, strategic placement of the company, and other factors.

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