The Director Compensation Project: Wachovia

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 Wachovia (WB-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 ($)	All Other Compensation ($)	Total ($)
John Baker II	82,000	157,500	0	0	239,500
Robert Brown*	17,500	37,500	0	0	68,540
Peter Browning	74,500	157,500	0	1,250	233,250
John Casteen III	85,000	157,500	1,000	243,500
Jerry Gitt	85,000	157,500	0	1,500	244,000
William Goodwin Jr.	74,500	157,500	0	2,000	234,000
Maryellen Herringer	74,500	157,500	3,074	0	235,074
Robert Ingram	89,500	157,500	0	0	247,000
Donald James	74,500	157,500	3,536	0	235,536
Mackey McDonald	74,500	157,500	0	2,000	234,000
Joseph Neubauer	107,000	157,500	7,220	0	271,720
Timothy Proctor	74,500	157,500	479	0	232,479
Ernest Rady	62,833	132,500	0	0	195,333
Van Richey	74,500	157,500	0	0	232,000
Ruth Shaw	89,500	157,500	2,836	0	249,836
Lanty Smith	125,000	157,500	0	0	282,500
John Whitaker Jr.	74,500	157,500	0	0	232,000
Dona Young	89,500	157,500	0	0	247,000

* Compensation amount reflects fees earned through retirement date.

Director Compensation . Wachovia’s board met eight times last year. All of the directors attended at least 75% of the meetings of the board. Only two of the eighteen non-employee directors received more than $100,000 in director’s fees paid in cash. Excluding Mr. Brown, who retired mid-year, non-employee directors as a group averaged $240,513 in total compensation for their services. Over sixty percent of their total compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules. The directors were also compensated in the form of a matching gift program. Under this program, the company matches, on a $2 for $1 basis, up to $4,000 of a director’s contributions to educational institutions or other nonprofit institutions.

Director Tenure . Approximately one-third of the non-employee directors have served on the board for seven years or less. Lanty Smith has the longest tenure by far at twenty-one years. Several directors also sit on other boards. Robert Ingram, a director since 2001, sits on the boards of Allergan, Edwards Lifesciences Corporation, Lowe’s Companies, OSI Pharmaceuticals, and Valeant Pharmaceuticals International.

CEO Compensation . Ken Thompson, who is CEO, President, and Chairman, received $21,198,510 in total compensation for 2007. Of Mr. Thompson’s total compensation, $1,090,000 came in the form of cash. Wachovia did not award Mr. Thompson any performance incentive compensation due to Wachovia’s lackluster results in 2007. Nonetheless, Mr. Thompson did receive significant stock and options awards ($19,679,828) the value of which was dependent upon company performance. Only one percent of Mr. Thompson’s compensation came in the form of "other compensation."