The Director Compensation Project: Lehman Brothers Holdings

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 Lehman Brothers Holdings Inc.’s (LEH-NYSE) 2008 Proxy Statement. According to the proxy statement, directors were paid the following amounts:

Name	Fees Earned or Paid in Cash	Stock Awards	Option Awards	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
M. L. Ainslie	$95,000	$245,038	$0	$0	$57,500	$397,538
J. F. Akers	115,500	245,038	0	0	0	360,538
R. S. Berlind	107,500	245,038	0	0	0	352,538
T. H. Cruikshank	140,000	245,038	0	0	0	385,038
M. J. Evans	128,000	245,038	0	0	0	373,038
C. Gent	120,500	245,038	0	0	0	365,538
R. A. Hernandez	80,000	245,038	0	0	0	325,038
H. Kaufman	95,000	0	254,388	0	0	349,388
J. D. Macomber	132,000	245,038	0	0	0	377,038

Director Compensation: Last year, the board for Lehman Brothers met eight times. Each director attended at least 75% of the meetings. The nine directors averaged about $365,065 in total compensation. They received an average of $112,611 in fees paid in cash. Each director received 245,038 in stock awards, with the exception of Mr. Kaufman, who received options instead of stock awards.

Director Tenure: The outside directors have an average tenure of about ten years. Roger Berlind is by far the longest serving board member, having served on the board since 1985. The majority of the other board members joined the board in the mid-90s, and only Ms. Evans, Sir Gent, and Mr. Hernandez have joined the board since 2000. The directors serve on an average of three other boards, with one director on the boards for MGM Mirage, Vail Resorts, and Wal Mart Stores, Inc.

CEO Compensation: Lehman Brothers CEO Richard S. Fuld, Jr.’s total compensation for 2007 was $ 34,382,036 . His base salary was only $750,000 (2.1% of total compensation), with most of his pay, $ 29,207,128 (84.9%), coming from stock and option awards, and $ 4,271,739 (12.4%) from his non-equity incentive plan, pension plan, and nonqualified deferred compensation earnings. Finally, Mr. Fuld received no bonus, and “other compensation” accounted for $153,169, less than 0.4% of his pay. Lehman Brothers does not extend any perquisites to the CEO, such as security equipment or use of a corporate aircraft, other than those that are generally available to all employees. Mr. Fuld received $0 in such perquisites.