Compensation to board of directors at Rhode Island-based public companies range
from a few thousand dollars to as much as $90,000, not including other fees
for attendance and involvement in committees.
Some in the business world say the high-end of the fee range is justified, while others say they are in excess.
“The fee is a function of a number of factors,” said Edward M. Mazze, a board member of Washington Trust since 2000 and dean of the College of Business Administration at the University of Rhode Island. “It’s the size of the company, the complexity of the business … the industry, the amount of time involved, and just as important, the kind of individual you want to attract.”
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The largest fee collected by a board member in Rhode Island is $90,000, for members of Textron’s board of directors. In comparison, the smallest sum goes to Astro-Med Inc.’s board, at $3,500 annually. Other Rhode Island companies include CVS, $50,000; Hasbro, $45,000; GTECH Holdings Corp., $30,000; American Power Conversion, $20,000; Washington Trust Bancorp., $16,000; and LIN TV Corp., $20,000.
One economist, however, said the large sums board members are paid are excessive and have nothing to do with efficiency or responsibility within the board.
“We forget that they wine them and dine them, fly them in on the company jet. They are treated as if they were royalty,” said William Sweeney, an economist and professor of economics at Bryant College. As to whether any executive should be paid upward of $90,000 for their board services, he said “emphatically, no.”
To the executive, whose time is worth money, Sweeney said, “When he or she goes to that meeting at Textron, let’s assume, it’s time he or she can’t spend managing the company,” so he or she should be compensated. “But that’s a fallacy – even if you go to the meeting, you’re also being paid by the company. It’s what I consider excessive compensation.”
The image of board of directors and executives at public companies has taken a hit following scandals involving Enron and Tyco, among others.
“One of the things that’s happened since Enron is that board members have a lot more responsibility and a lot more to lose,” he said. “You can get sued or go to jail. And there are a lot of new regulations that put heavy emphasis on the independence of the board member, the role of the audit committee. Now when members are selected, you have to have certain financial controls in place. You work a lot harder for the money you get.”
Independence of the board members is stressed, unlike in the 1990s, Mazze said. Now companies and their boards are held more responsible for indiscretions and their associations with one another.
“There is nothing as sobering as sitting in a board meeting and being told that if you don’t act responsibly, here’s a copy of the federal sentencing guidelines,” he said. “Most of us have our most important asset – our name.”
When asked if any company could justify paying its board members as much as $90,000 a year, plus other fees, Mazze said the money isn’t handed out – everyone on the board must earn that fee by being heavily involved in the company.
That means knowing all about that company, its competition, how regulations work that affect it, attending the meetings, serving on committees and being available for special meetings.
“The same argument could be made of, is it justifiable to pay anyone $1 million when the president of the United States only makes $400,000,” he said.
Sweeney said he sees it as a conflict of interest – the board’s compensation committee determines the members’ fees as well as the salaries of top executives for that company.
“Corporations – whether nonprofit or for-profit – have a tremendous responsibility to the (local) community, the nation and the world; even small companies are involved in international trade,” he said. “Boards should represent a cross-section of those served by the corporation. It would bring a different perspective to the responsibilities of the director of the board.”
As for the system, Mazze said most public companies have compensation committees that rely on third-party opinions, from research firms that evaluate companies all over the country, making sure they are in-sync with each other in that regard.
“Today, compared to four years ago, there are lots of people reading this information – the SEC, FTC – and if something is well out of line, you’re going to hear about it,” he said.
While Mazze said executives wouldn’t volunteer time and effort to serve on boards, Sweeney said it is possible to get a good board without compensation. He serves on a number of nonprofit organizations’ boards for free.
“I don’t think there’s any question – of course they can,” he said. “The philosophy
of why companies need a board of directors needs to change. They should be there,
overlooking top management, but they often become subservient. The board should
serve its constituents.”
