As regulators tighten their watch over boards, companies boost fees to make up for waning demand.
By SCOTT BARANCIK
Published March 26, 2004
TAMPA - Outback Steakhouse hasn't exactly showered cash on its board members. It pays well-known directors like Raymond James Financial CEO Tom James and cookie store founder Debbi Fields a base annual fee of $15,000 each.
That's about to change.
Come April 1, Outback will quadruple its annual fee for directors to $60,000. It will pay committee chairs thousands more for their time and effort.
It's part of a trend that began when Congress, and later the New York Stock Exchange and Nasdaq Stock Market, broadened the responsibilities, scrutiny and liability of corporate directors.
As more of those regulations phase in, the pay pressure mounts.
"The risk of being associated with a public company today is dramatically higher than it was just a couple years ago," Outback chief financial officer Bob Merritt said. "And you've got to compensate people accordingly."
Raymond James is raising its director fees, too. In 2003, it boosted its directors' base pay 29 percent, to $18,000. Soon, the company will triple, to $6,000, the premium it pays its audit committee chairperson and lead independent director, and double, to $4,000, the extra fee it pays other committee chairs.
Like Outback, Raymond James chief financial officer Jeff Julien said his company is merely trying to match the average director's pay at companies of similar type and size and compensate directors for their new burdens.
W.R. "Max" Carey Jr., who chairs Outback's audit committee, said his workload has increased commensurately. Last week, he met with the company's outside auditors to discuss its fraud review. This week, he worked on the company's system for dealing with employee whistle-blowers.
Under the new corporate governance laws, he's even had to hire and manage an internal auditor who scrutinizes the company's financial safeguards and reporting system, all at company expense.
"Historically, there's been a benign neglect on many boards," said Carey, who also sits on the board of Tampa staffing company Kforce Inc. "One thing (Outback CEO) Chris Sullivan made clear from the beginning was that he would rely on his directors heavily."
Despite higher pay, director candidates are scrutinizing the companies that recruit them; some even hire a lawyer to help them sort things out.
"I find that new outside directors are reading the (annual reports), finding out what the risks are and (what) the quality of management is more carefully than they have in the past, which I frankly view as a good thing," Outback's Merritt said.
Marty Traber, a partner at Foley & Lardner in Tampa, said many of the candidates he recruits for corporate boards focus on a company's directors-and-officers liability insurance. That includes the cap, the deductible, the carrier's viability and the policyholder's ability to pay a court judgment or settlement that exceeds the cap.
Some candidates now refuse to join a public company board, no matter what the pay.
"If a guy's got a net worth of $10-million, is (higher pay) really a great incentive if theoretically he could end up being part of a big lawsuit and lose a big chunk?" said Bob Grammig, chairman of the corporate governance practice group at Holland & Knight in Tampa.
"It's not just the threat of getting tagged for a large sum of money ... you can just see the tension and the gnawing psychological issues."
Charles Elson, chairman of the University of Delaware's corporate governance program, said he believes the recent rise in director compensation is deserved.
But he said there should be a limit to how much a director can be paid.
"That's the trade off: you pay them too little, you don't get the best talent," said Elson, who formerly taught at Stetson University College of Law in St. Petersburg. "You pay them too much, you run the risk of them becoming co-opted by management."
But if directors' fees ever were to grow as excessive as some CEOs' pay packages, directors would only have themselves to blame. Federal law lets directors set their pay without shareholder approval.
Traber, the Foley & Lardner attorney, noted the apparent conflict: "It does sound a little incestuous, I know."
- Times researcher Kitty Bennett contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or 727893-8751.
