The Director Compensation Project: Emerson Electric

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 known as SOX 301.

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

Name(1)	Fees Earned or Paid in Cash ($)	Stock Awards ($)(2)(3)	Change in Pension Value and Nonqualified Deferred Compensation Earnings (4)	All Other Compensation ($)(5)	Total ($)
A.A. Busch III	96,750	99,957	80,419	10,000	287,126
D.C. Farrell(6)	96,667	99,957	40,674	10,000	247,298
C. Fernandez G.	70,500	99,957	7,000	-	177,457
A.F. Golden	78,750	99,957	33,701	10,000	222,408
R.B. Horton	93,417	99,957	16,000	1,500	210,874
G.A. Lodge (7)	37,084	-	14,000	334,000	385,084
V.R. Loucks, Jr.	97,667	99,957	20,000	-	217,624
J.B. Menzer	78,750	99,957	-	-	178,707
J.W. Prueher	80,250	99,957	23,000	10,000	213,207
R.L. Ridgway	80,000	99,957	20,000	10,000	209,957
R.L. Stephenson	76,250	99,957	1,375	-	177,582

Director Compensation. Emerson’s board met eleven times in 2007. Each of the directors attended at least seventy-five percent of the Board or Committee meetings. All directors received less than $100,000 in fees paid in cash. The non-employee directors as a group averaged $229,757 in total compensation. Much of their compensation came from stock awards of $99,957, excluding Mr. Lodge. To recognize Mr. Lodge’s service to the Board, it made a charitable contribution in his name of $334,000. This was included as “other compensation” and represents the first of three annual installments, which will total $1 million.

Director Tenure. On average, the non-employee directors have served on the board for eleven years. This calculation does not include Lodge and Farrell. Mr. Lodge retired February 2007, and Mr. Farrell planned to retire February 2008. Two of the directors serve on the board of AT&T, and Mr. Prueher serves on four other boards, including Merrill Lynch.

CEO Compensation. CEO, Chairman, and President, D.N. Farr received $22,181,534 in total compensation last year. Only a small portion of Mr. Farr’s total compensation came from a base salary ($1,150,000). Nearly seventy-three percent of his compensation ($16,077,732) came in the form of stock awards, which is a combination of performance share awards and restricted stock. Of the $383,302 in “other compensation,” $172,150 went to personal use of company aircraft.