Corporate Governance

The Director Compensation Project: Abbot Laboratories

By Pardis Ostadi

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 Abbot Laboratories’ (ABT-NYSE) 2008 proxy statement:

Name		Fees Earned or Paid in Cash ($) (1)			Stock Awards ($) (2)			Option Awards ($) (3)			Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5)			All Other Compensation ($)			Total ($)
R. S. Austin		$	104,668		$	97,979		$	0		$	0		$	6,225		$	208,872
W. M. Daley			90,668			97,979			0			0			11,419			200,066
W. J. Farrell			90,668			97,979			0			4,967			12,049			205,663
H. L. Fuller			102,668			97,979			0			0			41,571	(6)		242,218
J. M. Greenberg			32,668			0			93,209	(4)		14,496			43,987	(6)		184,360
D. A. L. Owen			96,668			97,979			0			0			31,225	(6)		225,872
B. Powell Jr.			90,668			97,979			0			0			95,801	(6)		284,448
W. A. Reynolds			102,668			97,979			0			6,075			91,530	(6)		298,252
R. S. Roberts			90,668			97,979			0			5,297			42,702	(6)		236,646
S. C. Scott III			68,000			97,979			0			0			1,125			167,104
W. D. Smithburg			108,668			97,979			0			0			122,606	(6)		329,253
G. F. Tilton			68,000			97,979			0			0			1,333			167,312

Director Compensation : Abbot Laboratories’ board met seven times last year. The average director attendance at board and committee meetings was 96% . Four of the directors received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $229,172 in total compensation for their services. As can be seen in the table, the majority of the directors’ compensation came in the form of stock awards.

Director Tenure : On average, the non-employee directors have served on the board for less than twelve years. W. Ann Reynolds has more than twenty years of tenure, the longest by far. All but two of the directors also sit on other boards. One of the directors alone sits on the boards of Boeing, Art Institute of Chicago, Joffrey Ballet of Chicago, Loyola University of Chicago, Northwestern Memorial Hospital, and Northwestern University.

CEO Compensation : Abbot Labs CEO, Miles D. White, received $33,346,260 in total compensation, a relatively small portion of which ($1,726,936) came from cash. ”Other compensation” accounted for $1,048,661 of his pay. More than half of his pay came from performance based stock ($8,747,311) and option awards ($14,774,465) . Additionally, Mr. White’s compensation included a Performance Incentive Plan bonus of $4,050,000 to recognize his leadership in guiding the company to top-quartile performance in 2007.

Full post as published by The Race to the Bottom on May 04, 2008 (boomark / email).