The Director Compensation Project: The Clorox Company

This post is part of an ongoing series that examines the compensation paid to independent directors of public companies.  We are using information found in the 2011 proxy statements of the selected companies. 

In addition to state standards and Sarbanes-Oxley (“SOX”) requirements, the major U.S. stock exchanges each have their own standards for independence.  While the NYSE and NASDAQ rules are substantially the same, there are some minor differences between the two that are worth noting. 

NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director is considered independent under NYSE Rule 303A.02(b)(ii) if the director received less than $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years.  The NYSE “direct compensation” standard is less restrictive than the corresponding NASDAQ Rule, 5605(a)(2)(B), which includes "any compensation."

NYSE Rule 303A.06 requires a listed company’s audit committee members to comport with the requirements of Rule 10A-3 (17 C.F.R. §240.10A-3).  SOX Section 301 imposes similar requirements.

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the non-management director compensation table from The Clorox Company’s (NYSE:CLX) 2011 Proxy Statement.  According to the proxy statement, Clorox paid its non-management directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Daniel Boggan, Jr.	96,250	117,500			213,750
Richard H. Carmona	86,250	117,500			203,750
Tully M. Friedman	96,250	117,500			213,750
George J. Harad	106,250	117,500			223,750
Robert W. Matschullat	86,250	117,500			203,750
Gary G. Michael	111,250	117,500			228,750
Edward A. Mueller	106,250	117,500			223,750
Jan L. Murley	86,250	117,500			203,750
Pamela Thomas-Graham	86,250	117,500			203,750
Carolyn M. Ticknor	86,250	117,500			203,750

Director Compensation.  During fiscal year 2011, Clorox held 9 Board of Directors meetings and 22 Board Committee meetings.  Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served. 

Each of Clorox’s non-management directors receives an annual cash retainer.  Prior to September 30, 2010 the retainer was $75,000; as of October 1, 2010, the retainer increased to $90,000.  The lead director and committed chairs each received additional cash retainers.  Under Clorox’s Independent Directors’ Deferred Compensation Plan, each director may annually elect to receive all or a portion of his or her cash compensation in the form of cash, common stock, deferred cash, or deferred stock units.

Clorox credits deferred cash to an unfunded, interest-bearing cash account.  Clorox credits deferred stock units to an unfunded account on a cash-equivalent basis based on fair market value of Clorox common stock.  Upon payment of dividends on common stock, Clorox automatically allocates additional deferred stock units on a cash-equivalent basis to the same unfunded account.

Director Tenure.  Mr. Boggan is currently Clorox’s longest-tenured director with 21 years of service.  Messrs. Carmona and Mueller are currently Clorox’s shortest-tenured directors; each joined the Board in 2007.  Several directors also sit on other boards.  Mr. Matschullat sits on the boards of The Walt Disney Company, Inc. and Visa, Inc.  Mr. Michael is also a director of Questar Corporation and Idacorp.

Executive Compensation. 

CEO – Donald R. Knauss, Clorox’s Chief Executive Officer since October 2006, received $9,176,778 in total compensation during the 2011 fiscal year, a decrease of approximately 7% over the prior year.  Mr. Knauss’ compensation consisted of $1,135,385 in base salary, $2,625,295 in stock awards, $2,625,018 in option awards, $732,550 in non-equity incentive plan compensation, $1,812,176 in valuation changes in deferred compensation earnings, and $246,354 in all other compensation.  Mr. Knauss’ other compensation amount included a $13,200 automobile allowance, $13,707 as the remainder of a larger mortgage subsidy offered by Clorox as part of Mr. Knauss’ relocation to Clorox’s headquarters upon his hiring in 2006, and $5,509 for paid parking at Clorox headquarters, an annual executive physical, and health club membership reimbursement.

CFO – Daniel J. Heinrich, Clorox’s Executive Vice President and Chief Financial Officer, received $2,340,973 in total compensation during the 2011 fiscal year, a decrease of approximately 17% over the prior year.  Mr. Heinrich’s compensation consisted of $567,137 in base salary, $499,930 in stock awards, $499,983 in option awards, $332,490 in non-equity incentive plan compensation, $331,828 in valuation changes in deferred compensation earnings, and $109,605 in all other compensation.  Mr. Heinrich’s other compensation amount included a $13,200 automobile allowance, as well as $4,080 for paid parking at Clorox headquarters, an annual executive physical, and health club membership reimbursement.