The Director Compensation Project: Wells Fargo

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 found in their 2008 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 $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). (The NYSE recently increased this amount to $120,000).  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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Wells Fargo (WFC-NYSE) 2008 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 ($)		Total ($)
John S. Chen	91,000	70,021	37,879		198,900
Lloyd H. Dean	129,000	70,021	29,946		228,967
Susan E. Engel	109,000	70,021	29,946		208,967
Enrique Hernandez, Jr.	117,000	70,021	29,946		216,967
Robert L. Joss	150,000	70,021	29,946		249,967
Richard D. McCormick	118,000	70,021	29,946		217,967
Cynthia H. Milligan	121,000	70,021	29,946		220,967
Nicholas G. Moore	115,000	70,021	29,946		214,967
Philip J. Quigley	160,000	70,021	29,946		259,967
Donald B. Rice	118,000	70,021	29,946		217,967
Judith M. Runstad	101,000	70,021	29,946		200,967
Stephen W. Sanger	123,000	70,021	29,946		222,967
Susan G. Swenson	123,000	70,021	29,946		222,967
Michael W. Wright	105,000	70,021	29,946		204,967

Director Compensation. Wells Fargo’s board met seven times in 2007 and board members averaged 97% attendance. Each director attended at least 75% of all meetings, including general board meetings and each director’s committee meetings. Only two of the fourteen directors’ base salaries exceeded $129,000. On average, total compensation equaled $220,534. Approximately 34% of director compensation comprised of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure. Almost two-thirds of the non-employee directors have served on the board for at least nine years, and six have served for at least fourteen years. Richard McCormick has the longest tenure at twenty-five years. Several directors also sit on other boards. Enrique Hernandez, a director of Wells Fargo since 2003, is also a director at both the McDonald’s Corporation and Nordstrom, Inc. Donald Rice, a director since 1993, is also a director at Chevron Corporation and Vulcan Minerals Company.

CEO Compensation. Until June 2007 Richard Kovacevich served as CEO and Chairman of Wells Fargo. For his services, Mr. Kovacevich received $22,874,952 in total compensation. Option awards comprised approximately fifty percent of his total compensation, while he received $995,000 in base salary. In June 2007 Mr. Kovacevich resigned as CEO but continued as Chairman. After June 2007, John G. Sumpf moved from COO to CEO of Wells Fargo. In 2007, Mr. Sumpf received $12,568,917 in total compensation. Based the company’s 2007 performance, Mr. Kovacevich received 33% less in incentive compensation compared with his 2006 award, while Mr. Sumpf received 24% less. “Other compensation” comprised less than 3.4% of both Mr. Kovacevich and Mr. Sumpf’s total compensation.