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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: Prudential

By Greg Lebouton

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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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Prudential Financial’s (PRU-NYSE) 2008 proxy statement.

Name	Fees Earned or Paid in Cash⁽¹⁾ ($)	Stock Awards⁽²⁾ ($)	Option Awards⁽²⁾ ($)	All Other Compensation⁽³⁾ ($)	Total ($)
Lawrence T. Babbio, Jr.	75,000	69,871	102,062	740	247,673
Sari M. Baldauf	49,333	78,502	93,149	580	221,564
Richard A. Hackborn	111,000	171,937	—	15,324	298,261
John H. Hammergren	13,000	3,015	197,810	—	213,825
Joel Z. Hyatt	—	63,481	—	292	63,773
John R. Joyce	22,917	47,620	—	219	70,756
Robert L. Ryan	83,000	171,937	—	17,139	272,076
Lucille S. Salhany	84,000	171,937	—	1,320	257,257
G. Kennedy Thompson	12,000	142,071	—	1,055	155,126

Director Compensation . Prudential's board met eleven times last year. Although only one director received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $177,689 in total compensation for their services. About half of Prudential’s directors’ compensation was in the form of stock awards and option grants, and the other half came in the form of cash.

Director Tenure . On average, Prudential’s non-employee directors have served on the board for just under five years. James G. Cullen, has the longest tenure with Prudential. He was elected as a Director of Prudential Financial in January 2001 and was appointed by the Chief Justice of the New Jersey Supreme Court as a Director of Prudential Insurance in April 1994. He served as the President and Chief Operating Officer of Bell Atlantic Corporation. Many of the directors also sit on other boards. For instance, Mr. Cullen’s other directorships include: Agilent Technologies, Inc., Johnson & Johnson and NeuStar, Inc.

CEO Compensation . The compensation paid to the CEO, Arthur F. Ryan , was $ 22,220,349 last year; a relatively small portion of which came in the form of cash ($ 1,000,000 ). $ 244,457 of Mr. Ryan’s compensation was "other compensation." Mr. Ryan earned a $7,500,000 bonus based on his 2007 performance.

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