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 2017 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 HCA Holdings (NYSE: HCA) 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 ($)

R. Milton Johnson

1,391,667

4,176,192

4,305,242

11,458,473

21,331,574

Robert J. Dennis

110,000

174,922

0

0

284,922

Nancy-Ann DeParle

110,000

174,922

0

0

284,922

Thomas F. Frist III*

0

0

0

0

0

William R. Frist*

0

0

0

0

0

Charles O. Holliday, Jr.

78,381

174,922

0

0

253,303

Ann H. Lamont

127,500

174,922

0

0

302,422

Jay O. Light

166,151

174,922

0

0

341,073

Geoffrey G. Meyers

140,000

174,922

0

0

314,922

Wayne J. Riley, M.D.

142,500

174,922

0

0

317,422

John W. Rowe, M.D.

110,000

174,922

0

0

284,922

* The Frists were elected to the board in 2016 because of their relationship with the investment funds from Frist Entities who owns approximately 18.8% HCA’s common stock.

Director Compensation.  During fiscal year 2016, HCA held seven board of directors meetings and twenty-seven committee meetings. Each current director attended at least 75% of the total number of board and committee meetings on which he or she served. Directors are also encouraged to attend the annual stockholder meetings.

Director Tenure.  In 2016, Mr. Frist III, who has held his position as a member of the Board of Directors since 2006, has the longest tenure. He is also a principal of Frist Capital LLC, and a brother to William Frist. Mr. Holliday holds the shortest tenure as he joined the Board in 2016. He also has worked for DuPont for 37 years, and served as Dupont’s Chief Executive Officer from 1998 to 2008. Mr. Dennis has served as President and Chief Executive Officer of Genesco, Inc. since 2008, Ms. DeParle is a founding partner of Consonance Capital Partners. William Frist is a principal of Frist Capital LLC. Ms. Lamont has been a Managing Partner at Oak Investment Partners since 2006. Mr. Light has been the Dean Emeritus of Harvard Business School since 2006. Mr. Meyers is the Chairman of the Board for PharMerica Corporation, and a director of two other companies. Mr. Riley is President Emeritus of the American College of Physicians. Mr. Rowe has been a professor at the Columbia University Mailman School of Public Health since 2006.

CEO Compensation.  R. Milton Johnson, HCA’s Chairman and Chief Executive Officer since 2014, and a director of HCA since 2009, earned total compensation of $21,331,574 in 2016. He earned a base salary of $1,391,667, stock awards of $4,176,192, option stock awards of $4,305,242, incentive compensation of $1,943,442, deferred earnings of $9,497,031, and other compensation totaling $18,000. William B. Rutherford, Executive Vice President and Chief Financial Officer, earned total compensation of $4,092,366 in 2016. He earned a base salary of $793,750, stock awards of $1,197,035, option stock awards of $1,223,623, incentive compensation of $718,584, and other compensation totaling $169,374.