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BDO United States

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Ariel Kouvaras
Bliss Integrated Communication
646-386-2926
Ariel@Blissintegrated.com

Friday, December 14, 2012
BOARD COMPENSATION CONTINUES TO CLIMB FOR THE THIRD YEAR IN MIDDLE MARKET, BDO USA ANALYSIS FINDS
BOARD RETAINERS & FEES AND STOCK AWARDS COMPRISE 78% OF TOTAL PAY

Chicago, IL — Director pay in the middle market continues its ascent. The year-over-year increase in director compensation indicates that businesses see a need to pay top dollar for the most qualified director, ensuring that he or she is able to be effective in a tumultuous but growth-driven economic climate as well as in a time of increased regulation, public scrutiny and investor demand. The time commitment required, coupled with the personal risk the director assumes, is also driving director compensation pay increases. Overall average director pay at $120,886, up from $110,155, has increased by nearly 10 percent, according to an analysis of 600 companies conducted by BDO USA, LLP, a leading accounting and consulting organization. The increase in pay is not the result of a major spike in any one compensation element, but a steady increase in board retainer and committee fees, up 9%, and equity awards and options, up 11%.

Average pay mix across all surveyed middle market companies shows director compensation packages favor board retainers and fees ($47,129) and full-value equity awards ($46,975), each comprising 39% of total pay mix and a combined 78%, while committee retainers and fees ($8,123) and stock option awards ($18,659) reflect only 22% of the total director pay. The trend toward an increase in full-value equity compensation has been ongoing for nearly a decade—as part of a deliberate decision to provide the opportunity to board members to amass capital over a ten year period as a director.

"Market conditions play a major role in the increase in full-value equity pay. People think macro factors are out of their hands, so this is a way of hedging against a volatile market. The underlying point is that the company has to be successful to realize value of these awards," said Randy Ramirez a Senior Director on Compensation in the Corporate Governance Practice of BDO USA. "Expect to see the trend of higher compensation in growth industries, such as energy and healthcare, as they continue to increasingly intertwine with legislative action and the global marketplace."

These findings are from the most recent edition of The BDO 600: 2012 Survey of Board Compensation Practices of 600 Mid-Market Public Companies which examines the director compensation trends in publicly-traded companies with annual revenues from $25 million to $1 billion in the energy, healthcare, manufacturing, real estate, retail and technology industries; and publicly-traded companies with assets between $50 million to $2 billion in the banking and financial services industries. The study included proxy statements that were filed between May 15, 2011 and July 15, 2012.

Year-over-Year Industry Compensation:

 

2010 Total Average

2011 Total Average

Percentage Change

Energy

$139,930

$151,254

8.1%

Financial Services-Banking

$50,824

$57,426

13.0%

Financial Services-Non Banking

$77,022

$85,132

10.5%

Healthcare

$137,601

$148,272

7.8%

Manufacturing

$107,383

$111,926

4.2%

Real Estate

$119,685

$125,498

4.9%

Retail

$99,369

$110,844

11.5%

Technology

$149,428

$177,249

18.6%


Further findings from the BDO 600 Survey of Mid-Market Board Compensation Practices:

—    Director Pay Highest among Growth Industries - Technology continues its reign as the most profitable for board directors, with total average compensation at $177,249, up 18.6% from the previous year, followed by the energy (8.1%) and healthcare (7.8%) sectors, respectively. Even though the technology sector is the most lucrative for board directors, the top three industries for director pay are all amidst a period of growth. These industries have a prudent approach to director hiring and will wait for the right board candidate who best qualifies to meet the demands of the role. Therefore, strong competition allows exemplary candidates to command top dollar. Driving such high pay levels among these industries is a need to recruit a candidate who has industry experience as an executive and is keenly familiar with existing and pending legislation like healthcare reform or, in the energy sector, state by state hydraulic fracturing laws.

—    New Frontiers and Policies Drive Energy Sector Compensation - Board director pay continued to increase from last year, climbing by 8.1% from $139,930 to $151,254. The energy sector is evolving, as significant domestic drilling opportunities have attracted both growth and policy making. Higher compensation levels will also serve to ensure that directors are willing and able to make a commitment to the company. Pay rates in this sector are directly impacted by the need for companies to recruit directors with a sophisticated level of expertise in order to effectively assist in such a complex business landscape. Directors with a pioneering spirit, especially in clean energy, are also highly sought after for their ability to maximize new growth opportunities.

—    Major Growth in Financial Services Compensation - The financial services sector, including banking and non-banking, has the lowest director compensation rates among all the surveyed industries, with banking showing the most depressed average compensation rate ($57,426) among the group. While the industry has yet to catch up with its peers, most of which show compensation at double and triple that level, middle market financial services banking and non-banking companies saw overall average compensation jump by 13% and 10.5%, respectively. These are significant changes, as the compensation rates stagnated for a period of time, and remarkably they rank as the second and fourth largest increases this year.

*Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm's individual needs.

About BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 45 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,118 offices in 135 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.