The Director Compensation Project: Cigna

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 Cigna’s (CI-NYSE) 2008 proxy statement .

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	All Other Compensation ($)	Total Compensation ($)
(a)	(b)	(c)	(d)	(e)
Robert H. Campbell	100,000	555,936	10,085	666,021
Isaiah Harris, Jr.	95,000	331,864	1,184	428,048
Jane E. Henney, M.D.	95,000	391,437	6,805	493,242
Peter N. Larson	100,000	419,222	5,023	524,245
Roman Martinez IV	95,000	331,864	1,805	428,669
James E. Rogers	90,000	155,091	1,504	246,595
Harold A. Wagner	100,000	383,667	23	483,690
Carol Cox Wait	100,000	470,704	4,752	575,456
Eric C. Wiseman	71,250	112,653	430	184,333
Donna F. Zarcone	95,000	356,092	5,644	456,736
William D. Zollars	95,000	356,092	23	451,115

Director Compensation -- Directors’ cash compensation was between $90,000-100,000, with an additional $150,000 in stock. Directors with longer tenure received more deferred stock, and have higher total compensation.

Director Tenure -- Most directors have been on this board less than five years, with only three directors going back to the 1990’s. The board has eight annual meetings, with another six to nine committee meetings and average attendance of 82%. Cigna has a policy that directors cannot be members on more than three boards, including theirs; only one director is on two other boards.

CEO Compensation -- CEO H. Edward Hanway’s $25,839,777 in compensation included $18 million in “non-equity incentive” payments, $5 million in stock and options awards, and a base salary of $1,110,000. The company engages consultants to evaluate compensation for executives, analyzing equivalent positions in about eight health insurance companies. This determines base salaries, annual incentive bonuses and long-term incentives. While the management team technically met the performance targets required to qualify for incentive bonuses, the net income figure was a mere $1 million over the required threshold.