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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: State Street

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 State Street's (STT- NYSE) 2008 proxy statement.

Name	Fees Earned or paid in cash ($)	Stock Awards ($) 1,2	Total ($) 3
Tenley E. Albright	$41,750	$187,500	$229,250
Nader F. Darehshori 4	$104,750	$110,000	$214,750
Arthur L. Goldstein 4	$88,000	$110,000	$198,000
David P. Gruber 4	$145,625	$110,000	$255,625
Charles R. LaMantia 4	$148,750	$110,000	$258,750
Diana C. Walsh	$33,000	$180,000	$213,000
Ronald L. Skates	$41,750	$187,500	$229,250
Kennett F. Burnes	$31,500	$180,000	$211,500
Peter Coym 4,5	$96,667	$145,000	$241,667
Amelia C. Fawcett 5	$22,500	$236,667	$259,167
Richard P. Sergel 4	$91,000	$110,000	$201,000
Linda A. Hill	$25,500	$180,000	$205,500
Robert E. Weissman	$31,750	$205,000	$236,750
Gregory L. Summe	$24,000	$180,000	$204,000
Maureen J. Miskovic 5	$33,750	$236,667	$270,417

Director Compensation. The board met thirteen times during 2007. The average attendance was 75%. Three directors received more than $100,000 in director’s fees paid in cash, and the non-employee directors as a group averaged $228,575 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 State Street 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 9.5 years. Robert E. Weissman, the lead independent director, has an nineteen year tenure. Several of the directors also sit on other boards. One director alone sits on the boards at Stone Panels, Nanoscale Components, and Worcester Municipal Research Bureau.

CEO Compensation. One final point of interest is the compensation paid to the CEO, Ronald E. Logue. Mr. Logue recieved $28,344,955 last year, a relatively small portion of which came in the form of direct salary ($1,000,000). The majority of his compensation was stock and options awards worth $16,072,913 and a bonus of $3,750,000. Additionally, Mr. Logue benefitted from the increase in pension value and nonqualified deferred compensation earnings of $7,414,697, and "other compensation" of $107,345.

Full post as published by The Race to the Bottom on May 07, 2008 (boomark / email).