Corporate Governance

The Director Compensation Project: Office Depot

By Ryan Miller

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 Office Depot’s (ODP-NYSE) 2008 Proxy Statement. According to the proxy statement, directors were paid the following amounts:

Director Compensation: Office Depot’s board met seven times during the 2007 fiscal year. All directors attended at least 75% of the meetings. The board averaged $364,197 of total compensation, with only one director, Mr. Austrian, earning more than half of a million dollars. The majority of the independent directors’ compensation, as can be seen above, came in the form of stock and option awards. On average, 81% of each director’s compensation came in the form of stock or option awards, with Ms. Gaines’s compensation coming exclusively in stock and option awards.

Director Tenure: The average outside directors’ tenure is about nine years, with the senior board members, Mr. Fuente and Mr. Myers, each serving since 1987. As a whole, the directors sit on an average of two other boards.

CEO Compensation: For the fiscal year 2007, Office Depot’s CEO, Steve Odland received $12,863,046 in total compensation. His base salary was $1,000,000 (7.7% of total compensation), and he received $11,344,737 (88.1%) in stock and option awards. ”Other compensation” of, $518,309 (4.1%) accounted for the remainder of his pay. Mr. Odland’s benefits included a Company matching contribution of $157,750 under its non-qualified deferred compensation plan, and incremental cost of personal corporate aircraft usage of $311,344.

Full post as published by The Race to the Bottom on May 05, 2008 (boomark / email).