This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2016’s Fortune 500 and using information found in their 2016 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee. See NYSE Rule 303A.02(a)(ii).

Finally, as the Commission has noted with respect to director independence:

All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board.

Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).

Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from the Dow Chemical Company’s (NYSE: DOW) 2017 Proxy Statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash

($)

Stock Awards ($)

Option Awards

($)

All Other Compensation

($)

Total

($)

Ajay Banga

115,000

135,474

0

0

250,474

Jacqueline K. Barton

130,000

135,474

0

0

265,474

James A. Bell

150,000

135,474

0

0

286,491*

Richard K. Davis

130,000

135,474

0

0

265,474

Jeff M. Fettig

160,000

135,474

0

0

295,474

Mark Loughridge

130,000

135,474

0

0

265,474

Raymond J. Milchovich

115,000

135,474

0

0

250,474

Robert S. (Steve) Miller

115,000

135,474

0

0

250,474

Paul Polman

115,000

135,474

0

0

250,509*

Dennis H. Reilley

135,000

135,474

0

0

270,474

James M. Ringler

130,000

135,474

0

0

265,474

Ruth G. Shaw

115,000

135,474

0

0

250,996*

* Includes the change in pension value and above-market nonqualified deferred compensation earnings.

 

Director Compensation. During fiscal year 2016, Dow Chemical held seven board meetings and twenty-four committee meetings. All of the directors attended more than 75% of the total number of Board meetings and the total number of meetings of the committees on which the director served during the past year. Each director receives an annual retainer of $115,000. The Audit Committee and Compensation & Leadership Development Committee Chairmanships receive $20,000 annually, while all other Committee Chairmanships receive $15,000 annually. Directors are compensated $15,000 for Audit Committee Membership. The Lead Director is compensated an additional $30,000 annually. 

 

 

 

Director Tenure. In 2016, Ms. Barton, who has held her position as a director since 1993, held the longest tenure. Mr. Loughridge, Mr. Milchovich, and Mr. Miller hold the shortest tenure as they joined in 2015. All but one of the independent directors sit on other boards: Mr. Banga is President and Chief Executive Officer of MasterCard Inc., Mr. Loughridge serves as a director for The Vanguard Group, Mr. Milchovich serves as a director for Nucor Corporation, and Mr. Miller serves as a director for International Automotive Components Group, American International Group, Inc., and Symantec Corporation.

 

 

Executive Compensation. Andrew Liveris, Dow Chemical’s Chief Executive Officer since 2004 and Chairman of the Board since 2006, earned a total compensation of $22,963,059 in 2016. He earned a base salary of $1,930,800, stock awards of $9,259,836, option awards of $3,630,035, non-equity incentive plan compensation of $3,959,974, deferred compensation earnings of $3,552,037, and other compensation totaling $630,377. James Fitterling, President and Chief Operating Officer, earned a total compensation of $7,934,412 in 2016. His earned a base salary of $1,090,134, stock awards of $3,635,031, option awards of $1,425,033, non-equity incentive plan compensation of $1,719,854, deferred compensation earnings of $2,160,423, and other compensation totaling $64,360. All other compensation includes the cost of Company provided automobile for the CEO, personal use of corporate aircraft by the CEO, Company contributions to employee savings plans, reimbursements of costs paid for financial and tax planning support, relocation expenses, home security, executive health examinations and personal excess liability insurance premiums.