Director Compensation Project: Procter & Gamble

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 Procter & Gamble (PG-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Annual Retainer ($)	Committee Meeting Fees ($)	Committee Chair ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
Norman R. Augustine	12,500	4,000	1,667	-	50	18,217
Kenneth I. Chenault	25,000	4,000	-	-	-	29,000
Scott D. Cook	93,750	16,000	-	125,000	974	235,724
Joseph T. Gorman	27,083	6,000	3,333	-	-	36,416
Rajata K. Gupta	93,570	12,000	-	125,000	1,412	232,162
Charles R. Lee	93,570	34,000	10,833	125,000	1,100	264,683
Lynn M. Martin	93,570	12,000	-	125,000	1,030	231,780
W. James McNerney, Jr.	93,750	24,000	8,333	125,000	225	251,308
Johnathan A. Rogers	93,570	4,000	-	125,000	3,985	226,735
John F. Smith, Jr.	77,083	18,000	12,500	125,000	3,139	235,722
Ralph Snyderman	93,570	18,000	10,000	125,000	4,195	250,945
Margaret C. Whitman	93,570	16,000	1,666	125,000	511	236,927
Patricia A. Woertz	50,000	8,000	-	-	945	58,945
Ernesto Zedillo	93,570	12,000	-	125,000	3,757	234,507

Director Compensation. The Procter & Gamble board met nine times in 2008. Directors averaged an attendance greater than 83% of all board and committee meetings. Fees paid in cash ranged from $36,416 to a high of $138,583 for director Lee. The total compensation average for directors was $181,648; however, four directors earned less than $58,945. Discounting these four, the other ten directors earned $240,049 on average.

Director Tenure. Only three Procter directors have served five or less years on the board, while half of the board has served at least since 2001. Directors Lee and Martin share the honor of longest tenure on Proctor’s board, both starting with the company in 1994. Several directors serve on other boards. Ms. Martin serves on the boards of AT&T Inc., Ryder System, Inc., Dreyfus Funds, and Constellation Energy Group, Inc. Director Zedillo is the former President of Mexico, and also serves on the board of Alcoa Inc. and Electronic Data Systems Corporation.

CEO Compensation. Mr. Lafley serves as Chairman of the Board and CEO of Procter & Gamble. His total compensation for 2008 was $23,532,410; including a $1,700,000 salary, $4,000,000 bonus, stock awards amounting to $9,139,783, and “other compensation” of $343,791. Within the CEO’s compensation was $225,404 worth of personal use of the company aircraft. Mr. Lafley’s compensation was down slightly from 2007, where he received $27,735,734 for his services. The company’s second highest paid officer was COO Robert McDonald, who earned $10,951,777 in 2008.