The Director Compensation Project: Google 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 Google (NYSE:GOOG) 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 ($)
L. John Doerr	75,000	358,187	0	0	433,187
John L. Hennessy	75,000	358,187	0	0	433,187
Ann Mather	0	507,915	0	0	507,915
Paul S. Otellini	75,000	358,187	0	0	433,187
K. Ram Shriram	0	0	0	0	0
Shirley M. Tilghman	0	504,206	0	0	504,206
Eric E. Schmidt*	0	0	0	0	0
Sergey Brin*	0	0	0	0	0
Larry Page*	0	0	0	0	0

*Google’s employee directors, Mr. Schmidt, Mr. Page, and Mr. Brin, did not receive any compensation for their services as members on the board of directors in 2010.

Director Compensation.  During fiscal year 2010, Google held seven Board of Directors meetings and 29 Board Committee meetings.  Each director attended at least 80% of all board of directors and applicable committee meetings and six directors attended the Annual Meeting of Stockholders.  The company’s standard compensation for non-employee directors is a $350,000 Google Stock Unit grant in addition to an annual $75,000 cash retainer.

Director Tenure.   As founders, Mr. Page and Mr. Brin, have served on Google’s board of directors since its inception in September 1998.  Mr. Shriram has also served on the board of directors since September 1998.  Mr. Schmidt, who is now the Executive Chairman of the board of directors, has also served on the boards of Novell Inc., Apple Inc., and Seibel Systems Inc.  Ms. Mather has been a director since November 2005; she also serves on the boards of Glu Mobile Inc., MGM Holdings Inc., MoneyGram International, and Netflix Inc.  Mr. Hennessy is the President of Stanford University and also sits on the board of Cisco Systems, Inc.  Ms. Tilghman is the President of Princeton University.    

CEO Compensation. Presidents and founders, Mr. Page and Mr. Brin, have voluntarily elected to receive base salaries of $1.  Chief Executive Officer, Mr. Schmidt, also receives a base salary of $1, but was reimbursed $311,433 in security costs and aircraft charters on which friends and family flew.  As significant stockholders, their personal wealth is directly linked to continual stock price appreciation.  Mr. Page and Mr. Brin each own over 27 million shares of common stock, while Mr. Schmidt owns over 9 million shares.  Mr. Schmidt, beneficially owns one aircraft and one third of another aircraft that are used by Google executive officers for business trips.  The board of directors approved an hourly reimbursement rate of $7,500 to Mr. Schmidt.  In sum he was reimbursed $1.2 million in 2010.  Chief Financial Officer, Mr. Pichette, had a base salary of $492,115 and received total compensation of $22,607,152 during 2010.