Corporate Governance

The Director Compensation Project: Walgreens

By Katharine Jensen

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 Walgreens (NYSE:WAG) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

*Compensation amount reflects fees earned through retirement date.

Director Compensation.  During fiscal year 2008, Walgreens held 11 Board of Directors meetings and 19 Board Committee meetings.  Each director attended at least 86% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  In November 1996, Walgreens initiated the Walgreen Co. Nonemployee Director Stock Plan.  Under this plan, each nonemployee director received a grant of Walgreens' common stock on November 1 according to a dollar value set by the Board.  On November 1, 2007, this grant increased to $120,000.

Director Tenure.  In 2008, Mr. Walgreen III, who has held his position as a member of the Board of Directors since 1963, held the longest tenure.  Mr. Howard and Mr. Silva, who retired on January 1, 2009, each served on the Board for one year.  Several directors also sit on other boards.  Mr. Skinner sits on the boards of McDonald's Corporation and Illinois Tool Works, Inc.  Mr. Foote is also a director of USG Corporation, Kohler Co., and the National Association of Manufacturers.  He serves as Deputy Chairman for the Board of The Federal Reserve Bank of Chicago.

CEO Compensation.  Jeffrey Rein, who served as Walgreens' Chief Executive Officer until October 10, 2008, earned $6,232,950 during the fiscal year.  Mr. Rein resigned his position after 27 years with the company and now sits on the Board of Directors for J.C. Penny Co.  Mr. Rein began his employment with Walgreens as an assistant manager, working his way through various promotions until he became CEO in 2006.  His retirement package included payment of all accrued vacation and six months of continued base salary, bonus, and benefits.  Mr. Rein will also receive an additional six months of continued base salary, bonus, and benefits pursuant to a Retirement and Non-Competition Agreement signed with the company.  Gregory Wasson, President and Chief Operating Officer of Walgreens, received $2,621,653 in total compensation in 2008.  This represents an increase of 10.7% to $775,000 base salary in January 2008.  Mr. Wasson's base salary is slightly above the January 2008 median base salary for President/COOs at companies within Walgreens' peer group.

Full post as published by The Race to the Bottom on May 20, 2009 (boomark / email).