ADVANCING EXEMPLARY BOARD LEADERSHIP

Board Preview: What's Next for Director Compensation Compensation Series

January 29, 2015

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Meet The Presenters

Brett Herand, is Vice President in the Chicago office of Pearl Meyer

& Partners, where he works with boards and management on

executive-compensation.

Richard Goeglein (moderator), is a Director at Pinnacle

Entertainment, Inc., and a member of its compliance and

compensation committees.

Jan Koors, Managing Director of Pearl Meyer & Partners and

head of the firm's Chicago office.

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Click the buttons below to access additional resources

Housekeeping

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Housekeeping

Click below for a copy of the slides.

Slides are also available at:

www.pearlmeyer.com/whatsnextfordirectorcompensation

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You will automatically receive 1 NACD skill-specific

credit for your participation.

Credit may be applied to NACD Fellowship

programs. Contact Fellowships@NACDonline.org

for more details.

The replay and slides will also be available early

next week at NACDonline.org/webinars and

pearlmeyer.com

Housekeeping

Director Compensation Data for 1,400 Companies Grouped by Industry and Company Size

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5 Size Categories

Based on Annual Revenue All Companies Publicly-Traded

Micro: $50M-$500M

Small: $500M-$1B

Medium: $1B-$2.5B

Large: $2.5B-$10B

Top 200: Largest 200

Companies in the

S&P 500

Across 24 industries based on

GICS at the group level

Micro21%

Small21%

Medium22%

Large22%

Top 20014%

Board Composition Continues to Evolve

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Board CompositionMicro Small Medium Large Top 200

% with 1-year Term Length 51% 60% 58% 73% 92%

% with > 1-year Term Length 49% 40% 42% 27% 8%

Median Director Age (yrs) 64 63 64 64 64

Median Director Tenure (yrs) 9.1 8.9 8.8 8.5 8.2

Prevalence of Disclosure 27% 39% 53% 64% 84%

Median Retirement Age 72 72 72 72 72

Median No. of Directors (a) 7 8 9 10 11

% of cos. with >= 1 female director 54% 70% 75% 88% 100%

% of cos. with >= 2 female director 19% 23% 34% 59% 85%

% of cos. with >= 3 female director 3% 7% 11% 21% 39%

Prevalence of Combined CEO/COB 43% 41% 47% 47% 63%

(a) Includes non-employee and employee directors

Mandatory

Retirement

Board

Gender

Diversity

Total Direct Compensation Increased by 1% to 5% Against the Prior Year

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Annual Growth in Median Total Direct

Compensation

2014 2013 2014 2013 2012 2011 2010 2009 2008

Micro $105,583 $101,926 +4% +4% +1% +6% +20% -3% -5%

Small $144,643 $142,573 +1% +11% +2% +6% +10% -6% +2%

Medium $181,358 $172,754 +5% +4% +4% +8% +13% -2% +1%

Large $214,283 $204,079 +5% +6% +4% +6% +7% -1% +6%

Top 200 $258,000 $253,474 +2% +4% +6% +1% +5% +1% +4%

Median Total Direct

Compensation

Year-over-year Changes in Compensation Driven by Cash Retainer and Stock Award Values

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Year-Over-Year Change in Compensation by ElementBoard Compensation Micro Small Medium Large Top 200

Cash Retainer (a) 10% 11% 0% 11% 6%

Board Meeting Fees (b)(c) 14% -2% 0% 0% 1%

Total Stock Award (a) 6% 10% 7% 9% 4%

Total Board Compensation (a) 5% 3% 5% 6% 4%

Committee Compensation (c) 4% -5% -1% -2% -8%

Total Direct Compensation 4% 1% 5% 5% 2%

TDC Per Meeting 15% 11% 8% 8% 5%

Total Board Cost 1% -1% 9% 7% 3%

(a) Reflects median of all companies (i.e., summary data includes zeros)

(b) Board meeting fees reflect median of those companies using that pay element

(c) Includes meeting fees and committee fees paid in cash and/or stock

Full-value Stock Accounts for the Largest Portion of Total Pay

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37% 34% 31%33%

34%7%5% 4%

3%

1%

11%9%

9%7%

5%

33%

43%

47%

50%

54%

11%

8%

9%

6%

5%

$105,583

$144,643

$181,358

$214,283

$258,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Micro Small Medium Large Top 200

36%35% 31%

33%34%8%

7% 4%4%

2%

11%

10% 9%

8%6%

32%

40%

46%

47%

53%

12%

8%

9%

8%

6%

$101,484

$142,188

$172,259

$204,079

$253,474

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Micro Small Medium Large Top 200

Board Stock Options

Board Full-Value Stock

Committee Pay

Board Meeting Fees

Board Cash Retainer

NACD Leading Practice: Deliver at Least 50% of Pay in Equity

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Percentage of Companies Delivering 50% or More of Total Director Pay in Equity

45%49%

67%63%

78%

48%53%

70% 70%

80%

44%

60%

73% 70%

85%

0%

25%

50%

75%

100%

Micro Small Medium Large Top 200

2012

2013

2014

Full-value Shares Preferred Over Stock Options

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26%20% 22%

15% 13%

71%

87% 87%93% 96%

0%

25%

50%

75%

100%

Micro Small Medium Large Top 200

Stock Options

Full-value Shares

Prevalence of Stock Option and Full Value Share Equity Grants

Majority of Companies in All Size Categories Use Fixed Value Equity Grants

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Equity Grant Practices: Fixed Values vs. Fixed Shares

Board Equity Micro Small Medium Large Top 200

Total Firms Providing Equity 86% 93% 94% 97% 99%

Fixed Value (a) 56% 68% 62% 77% 80%

Fixed Shares (a) 39% 27% 31% 17% 12%

Combination (a) 5% 6% 7% 6% 8%

The Decline in Committee Meeting Fee Prevalence Continues

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YoY Change in Prevalence of Committee Meeting Fees

Micro Small Medium Large Top 200

Chair -3% -7% -3% -5% -3%

Member -3% -7% -4% -5% -3%

Chair -3% -7% -5% -3% -3%

Member -3% -7% -5% -3% -3%

Chair -3% -7% -4% -3% -3%

Member -3% -7% -4% -3% -3%

Audit

Comp

Nom/Gov

Committee Meeting Fees More Likely to be Replaced with Adjustments to Board Pay Elements

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YoY Change in Prevalence of Any Committee Pay

Micro Small Medium Large Top 200

Chair -1% -1% -1% +1% 0%

Member 0% -2% -3% -3% 0%

Chair -1% +0% -1% +2% +2%

Member -1% -2% -2% -1% -1%

Chair -1% 0% -1% +2% 0%

Member -1% -3% -1% 0% 0%

Audit

Comp

Nom/Gov

Audit Committee Chairs Continue to be Paid a Premium Over Other Committee Chairs

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$15,0

00 $20,0

00

$23,0

00

$25,0

00

$25,0

00

$10,0

00

$13,5

00

$15,0

00

$18,0

00

$20,0

00

$6,2

50

$10,0

00

$12,0

00

$13,5

00

$15,0

00

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Micro Small Medium Large Top 200

Audit Chair

Comp Chair

Gov Chair

Median Pay for Top 200 Compensation and Nom/Gov Committee Members is $0

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$5,6

25 $

7,5

00

$10,0

00

$10,0

00

$6,6

25

$3,2

50 $

5,0

00 $

7,0

00

$7,2

00

$0

$1,5

00

$3,0

00 $

5,0

00

$5,0

00

$0

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Micro Small Medium Large Top 200

Audit Member

Comp Member

Gov Member

Prevalence of Premium Comp for Board Leadership

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• Prevalence of premium compensation for Non-executive

Chairs flat but increasing for Lead/Presiding Directors

• Non-executive Chairs continue to receive a larger pay

premium relative to Lead/Presiding Directors

Compensation for Non-Executive Board Leadership

Prevalence Difference:

Premium Compensation for

Non-exec Chair vs. Lead /

Presiding Director

Median TDC for Board

Leadership (b)

Median Board Leadership

TDC as a Multiple of Board

Member TDC (b)

Non-Executive

Chairs

Lead /

Presiding2014 2013

Non-Executive

Chair

Lead /

Presiding

Non-Executive

Chair

Lead /

Presiding

Micro 87% 61% 26% 27% $150,273 $114,500 1.50x 1.12x

Small 89% 64% 25% 29% $200,000 $140,593 1.42x 1.12x

Medium 90% 68% 22% 27% $261,000 $187,000 1.48x 1.13x

Large 87% 80% 7% 11% $320,000 $222,000 1.59x 1.11x

Top 200 85% 76% 9% 13% $420,000 $270,036 1.80x 1.10x

(a) Prevalence based on those firms with that type of independent board leadership

(b) Excludes fees paid for committee service

Prevalence of Premium

Compensation for (a)

Ownership Guidelines Typically Expressed as a Multiple of Annual Cash Retainer

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• Holding requirements increasingly common

Prevalence of Stock Ownership Guidelines (SOG)

Micro Small Medium Large Top 200

% of Companies with Any Form of Guideline 46% 67% 75% 87% 88%

% of Companies with Multiple of Retainer Guideline 34% 51% 61% 63% 68%

Median Multiple of Retainer Requirement 3.0x 3.0x 5.0x 5.0x 5.0x

% of Companies with Share-based Guideline 9% 7% 10% 16% 13%

% of Companies with Dollar-based Guideline 3% 11% 6% 11% 9%

Median Dollar Value Requirement $150,000 $197,500 $245,000 $250,000 $400,000

Full Value Share Holding Requirements

Prevalence 11% 15% 15% 19% 28%

Specified Time in Years 33% 23% 23% 18% 9%

Until or Beyond Retirement 19% 30% 33% 43% 76%

Until Ownership Guideline Achieved 48% 48% 44% 39% 15%

Median % of Shares Required to Be Held 50% 100% 100% 100% 100%

Key Takeaways

Modest

– Compensation increases in the mid-single-digits for the foreseeable

future

Simple

– Elimination of meeting fees and committee pay in favor of cash retainer

and equity grants

Aligned

– Equity > cash

– Ownership guidelines and holding requirements

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ADVANCING EXEMPLARY BOARD LEADERSHIP

Questions

ADVANCING EXEMPLARY BOARD LEADERSHIP

Thank You

Don’t Miss Our Upcoming Webinar

Join NACD and Pearl Meyer & Partners for the next program in our Compensation Series:

March 12, 2015

To register or check out the archives of earlier webinars in this series, visit NACDonline.org/webinars.

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