Director Compensation Project: Cardinal Health

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 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 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 Cardinal Health (CAH-NYSE) 2009 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 ($)
Colleen F. Arnold	66,522	55,515	116,870	819	239,726
George H. Conrades	84,283	38,017	77,044	1,271	200,615
Calvin Darden	76,750	38,017	77,044	694	192,505
John F. Finn	88,109	38,017	77,044	102	203,272
Philip L. Francis	81,000	54,196	107,918	1,042	244,156
Robert L. Gerbig	28,245	10,009	27,161	91	65,506
Gregory B. Kenny	68,353	55,506	117,561	297	241,717
J. Michael Losh	91,940	38,017	77,044	126	207,127
John B. McCoy	91,310	38,017	77,044	-	206,371
Richard C. Notebaert	102,239	38,017	77,044	-	217,300
Michael D. O’Halleran	79,500	38,017	77,044	527	195,088
David W. Raisbeck	76,500	38,017	77,044	202	191,763
Jean G. Spaulding, MD	74,500	38,017	77,044	-	189,561
Matthew D. Walter	45,637	10,009	27,161	96	82,903

Director Compensation. Cardinal Health held four regular and four special meetings of the board in 2008. All members attended at least 75% of their board and committee meetings. Fees paid in cash ranged from $28,245 to $102,239. Including directors Gerbig and Walter, the only member to earn less that $100,000, director compensation averaged $191,258; discounting them fees were $212,695 on average.

Director Tenure. Five directors have served on the board for less than tree years, while seven members have served for six or more years. Mr. McCoy is entering his twenty-second year on Cardinal’s board, making him the board’s longest serving director. Several directors serve on other boards. Mr. Darden serves on the boards of the Target Corporation and Coca-Cola Enterprises, Inc. Director Losh is busy serving on five other boards, including: AMB Property Corporation, Aon Corporation, H.B. Fuller Company, Masco Corp., and TRW Automotive Holdings Corp.

CEO Compensation. Mr. Kerry Clark is Cardinal’s Chairman and CEO and his compensation for 2008 was $11,060,176. Included in this figure was a $1,441,257 salary, $691,804 bonus, stock awards of $3,424,417, options amounting to $5,255,897, and $246,801 in “other compensation.” Cardinal paid $196,095 for its CEO’s personal use of the company aircraft. The company also paid for Mr. Clark’s temporary housing, automobile expenses, and security system for his personal residence, none of which cost more than $25,000 individually. Not including the compensation paid due to the retirement of two Cardinal executives, Mr. Henderson was the second highest paid employee, serving as CFO and earning $3,042,891 for his services.