The Director Compensation Project: Merrill Lynch

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 Merrill Lynch’s (MER-NYSE) 2008 proxy statement:

		Fees Earned or Paid in Cash
Director		Annual Retainer					Committee Chair Retainer						Stock Awards				Increase in Pension Value				All Other Compensation					Total
Carol T. Christ		$	37,500				$		n/a				$	154,221			$	n/a			$	50				$	191,771
Armando M. Codina			75,000						10,000					185,068				n/a				99					270,167
Virgis W. Colbert			75,000						n/a					185,068				n/a				1,497					261,565
Alberto Cribiore			75,000						10,417					185,068				n/a				706					271,191
John D. Finnegan			75,000						21,667					185,068				n/a				1,120					282,855
Judith Mayhew Jonas			75,000						n/a					185,068				n/a				15,762					275,830
Aulana L. Peters			75,000						n/a					185,068				—				9,996					270,064
Joseph W. Prueher			75,000						15,000					185,068				n/a				3,742					278,810
Ann N. Reese			75,000						16,667					185,068				n/a				789					277,524
Charles O. Rossotti			75,000						10,000					185,068				n/a				4,353					274,421
Jill K. Conway			25,000						13,333					—				n/a				—					38,333
David K. Newbigging			25,000						8,333					—				n/a				16,341					49,674

Director Compensation. Last year the board of directors met 12 times, each director attended at least 75% of the meetings. The non-employee directors averaged $228,517 in total compensation. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules. Providing such a large portion of director’s fees in stock awards allows Merrill Lynch to pay its directors handsomely while saving cash and complying with the exchange rules at the same time.

Director Tenure . The average director tenure is about four years, the longest is fourteen. Most of the directors serve on other boards such as General Motors, Home Depot, Sara Lee, 3M, Northrop Grumman, The Chubb Corporation, Sears, Xerox, and others.

CEO Compensation. The CEO, Mr. Thain, was paid $17,307,610 last year, a relatively small portion of which came in the form of direct salary ($57,692). The remaining compensation came from a $15 million signing bonus, $902,966 in stock awards, and $1,342,503 in option awards.