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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: Honeywell International

By William McEachron

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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 each have their own standards for 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 Honeywell’s (HON-NYSE) 2008 proxy statement. According to the proxy statement, the directors received the following compensation:

Director Name	Fees Earned or Paid in Cash (1) ($)			Stock Awards (2) ($)		Option Awards (2) (3) ($)			Change in Pension Value and Nonqualified Deferred Compensation Earnings (4)			All Other Compensation (5) ($)			Total ($)
Gordon Bethune		$	181,000		—		$	47,195		$	25,597			—		$	253,792
Jaime Chico Pardo		$	177,500		—		$	47,195			—		$	10,943		$	235,638
D. Scott Davis		$	204,000		—		$	27,626		$	1,665		$	1,260		$	234,551
Linnet Deily		$	184,000		—		$	27,626			—		$	30,358		$	241,984
Clive Hollick		$	181,000		—		$	47,195		$	1,454			—		$	229,649
James Howard		$	189,000		—		$	47,195			—		$	1,885		$	238,080
Russell Palmer		$	104,334		—		$	64,314		$	7,766		$	28,820		$	205,234
Ivan Seidenberg		$	186,000		—		$	47,195		$	12,038		$	25,004		$	270,237
Bradley Sheares		$	180,000		—		$	43,000		$	2,890		$	26,415		$	252,305
Eric Shinseki		$	186,500		—		$	47,195			—		$	15,335		$	249,030
John Stafford		$	196,500		—		$	47,195		$	42,024		$	23,605		$	309,324
Michael Wright		$	195,500		—		$	47,195			—		$	4,328		$	247,023

Director Compensation: Honeywell’s board convened eight times last year. The average fee earned was $180,444. The directors’ average total compensation was $247,237. Option awards, stock awards, changes in pension, and “other compensation” make up an average of twenty seven percent of total compensation.

Director Tenure: The average tenure on Honeywell’s board is five years. John Stafford has the longest tenure at fifteen years; he also sits on the board of Verizon Communications Inc. Linnet Deily sits on the board of Alcatel-Lucent and Chevron.

CEO Compensation: CEO, David M. Cote, received $18,639,386 in compensation last year. Mr. Cote received $1,618,269 in direct cash salary. Stock options and awards, a non-equity incentive plan, and a change in his pension made up the vast majority of his remaining compensation. Mr. Cote received $407,930 in “other compensation.” Mr. Cote’s “other compensation” included $158,739 for the use of the corporate aircraft.

Full post as published by The Race to the Bottom on May 02, 2008 (boomark / email).