The Director Compensation Project: Berkshire Hathaway, Inc.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.  

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 $120,000 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, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

One can see some of the effects of these rules when looking at the director compensation table from Berkshire Hathaway (NYSE: BRKA) 2011 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Warren E. Buffet	100,000	0	0	424,946	524,946
Howard G. Buffet	2,700	0	0	0	2,700
Stephen B. Burke	2,700	0	0	0	2,700
Susan L. Decker	2,700	0	0	0	2,700
William H. Gates III	2,700	0	0	0	2,700
David S. Gottesman	2,700	0	0	0	2,700
Charlotte Guyman	6,700	0	0	0	6,700
Donald R. Keough	4,000	0	0	0	4,000
Charles T. Munger	100,000	0	0	0	100,000
Thomas S. Murphy	6,700	0	0	0	6,700
Ronald L. Olson	2,700	0	0	0	2,700
Walter Scott, Jr.	2,700	0	0	0	2,700

Director Compensation.
In 2010, the board held an annual meeting of directors, an annual meeting of shareholders, and two special meetings. Each director attended all meetings of the board and of the committees on which he or she served except for Mr. Keough. Mr. Keough was absent from the annual meeting of the board of directors, the two special meetings, and three of the five Audit Committee meetings due to illness. Because Mr. Warren E. Buffet and Mr. Munger are employees, they do not receive fees for attendance at directors’ meetings. The remaining directors are not employees or spouses of employees and they each receive a fee of $900 for each meeting attended in person and $300 for participating in any meeting conducted by telephone. A director who serves as a member of the Audit Committee receives a quarterly fee of $1,000. Directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of directors or shareholders.

Director Tenure.
Mr. Warren Buffet has been a director of the Corporation since 1965 and has been its Chairman and Chief Executive Officer since 1970. The director with the shortest tenure is Mr. Burke,he has been a director since 2009. Several directors also sit on other boards. Mr. Howard Buffett is a director of The Coca-Cola Company and Lindsay Corporation. Mr. Burke is the Chairman of the Children’s Hospital of Philadelphia and a director of JPMorgan Chase and Co. Ms. Decker sits on the boards of Intel Corporation, Costco Wholesale Corporation and LegalZoom. Mr. Gates is serves on the board of directors for Microsoft Corporation and is Co-chair of the Bill & Melinda Gates Foundation. Mr. Keough is a director of Allen & Company, InterActive Corp., and The Coca-Cola Company. Mr. Munger is a director of Wesco Financial Corporation, Daily Journal Corporation, and Costco Wholesale Corporation. Mr. Olson is a director of City National Corporation, Edison International, Southern California Edison and The Washington Post Company. Mr. Scott is a director of Level 3 Communications, Peter Kiewit Sons’ Inc., and Valmont Industries Inc.

CEO Compensation.
Mr. Buffett’s annual compensation has been $100,000 for more than 25 years, and Mr. Buffett has requested that his compensation remain at this level in the future. For the past four years, Berkshire has provided personal and home security services for Mr. Buffett, and the amount of these services was $349,946 in 2010. Marc D. Hamburg has been Berkshire’s Senior Vice President and Chief Financial Officer since 1992. His annual salary in 2010 was $912,500, a 5.5% increase from 2009, and he received $12,250 towards a subsidiary’s defined contribution plan.