Director pay rising with demands on corporate boards: Some members manage to serve multiple Indiana public companies; median compensation exceeds $59,000

June 23, 2008

Joe Ruffolo learned a great deal over 35 years as an executive at PepsiCo., Squibb Corp., Reynolds Aluminum and North American Van Lines.

Now running his own investment banking company, Fort Wayne-based Ruffolo Benson LLC, Ruffolo also holds seats on a halfdozen company boards.

Executive compensation experts say that's too much on one plate.

Ruffolo is one of a handful of Hoosiers who serve as independent board directors of more than one Indiana-based public company. Experts say it's an increasingly complex job with responsibilities and time commitments that have grown to match. They question how someone with a full-time job can contribute much to multiple boards.

One thing's certain: today's board directors are well-compensated. Their pay began rising sharply after the Sarbanes-Oxley Act was implemented in 2002, along with their level of responsibility.

In Indiana, median pay for Indiana's public company board directors last year reached $59,214. But it can run far higher. According to board compensation disclosures filed with the Securities and Exchange Commission, 150 Indiana directors earned six figures or more in 2007-and 42 of those took home at least $200,000.

Indianapolis health insurer WellPoint Inc. spends far more on its board than any other Indiana-based company. In 2007, it listed $5.2 million in total compensation for its 15 independent directors; the median pay was $345,250.

Beleaguered Carmel insurer Conseco Inc. spends the next most. Last year, its proxy statement showed $2.9 million in expenses for nine independent directors.

WellPoint spokeswoman Cheryl Leamon said her company's board compensation program is a mix of cash and stock, including annual retainers for committee work and fees for meetings attended. The insurer developed the system in 2005 by blending Anthem's and WellPoint Health Network's practices after the companies merged, and reviewing similar programs at other Fortune 50 firms.

Board compensation is even more closely associated with company size than executive pay, said corporate governance expert Paul Hodgson, senior research associate for the Portland, Maine-based Corporate Library.

"Directors will say they've done a lot of non-meeting work, research, speaking to employees. It isn't just the board meetings and the committees. There's other work as well," Hodgson said. "But that's not recorded anywhere. So it's difficult to compare."

But observers can glimpse how independent directors earn their pay by tracking the frequency and attendance at board or com-See BOARDS next page mittee meetings.

"My sense is that boards are a lot more active than they once were, because they are a lot more accountable than they once were," said David Denis, a professor at Purdue University's Krannert Graduate School of Management. "They meet more often ... and their meetings are more involved. There was a time when board meetings were pretty perfunctory. The CEO told what he wanted to do, and the board rubberstamped it. I don't think you see that much anymore."

Indeed, only 10 people serve on more than one Indiana public company board. Former Purdue University President Martin Jischke, Indianapolis Motor Speedway chief Anton "Tony" George, Indianapolis businessman William Mays and former Indiana first lady Susan Bayh are among the more prominent double-or triple-dippers.

Last year, Ruffolo earned $137,550 for his service as an independent director of Fort Wayne-based Steel Dynamics. He received another $23,952 for his work on the board at Fort Wayne's Tower Financial Corp. His director's seat at Dallas-based Kitty Hawk Inc. paid $87,750 annually, until he stepped down last fall. He also serves on the board of three private companies, but they aren't required to disclose compensation.

Ruffolo said he isn't motivated by the money.

"From a practical standpoint, I don't think board members are on boards to make money. I think they're on boards to do a good job," he said. "They're very involved people who want to use their experience to help corporations do well."

Increasingly, public-company board positions are high-pressure jobs, said Brian Tobin, an executive compensation practice leader for Philadelphia-based Hay Group Inc. Shareholders and the financial media are much likelier today to hold directors'feet to the fire for bad decisions.

"There's a reason directors now are not taking on five or six board roles. Now it's usually no more than three seats, because this is a full-time role," Tobin said. "There's a long ramp-up time. And you don't have the luxury [of an apprentice period] to get up to speed. You have to be spot-on when you show up to the first board meeting. That's very hard to do-even as a retired executive-for more than three or four organizations."

But Ruffolo said it's all a matter of time management. He said he doesn't seek out board memberships, but fields regular invitations due to his leadership roles in northeast Indiana. Ruffolo said he's turned down many board seats, choosing the few where he believes he can best aid his community.

"It's a time-consuming function. [But] time is relative. If you're looking at 20 or 40 hours a week, nobody has [enough] time," Ruffolo said. "But if you're really willing to spend time, as I am, you make the time. You shouldn't be on the board if you're not willing to devote the time to it."
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