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 2017’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 Pfizer Inc. (NYSE: PFE) 2016 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned

or Paid in Cash

($)

Equity/Stock
 Awards
($)

Option Awards ($)

All Other

Compensation*

($)

 

Total

($)

Dennis A. Ausiello, M.D.

201,676

187,500

0

11,450

400,626

W. Don Cornwell

151,676

187,500

0

15,000

354,176

Joseph J. Echevarria

137,500

187,500

0

0

325,000

Frances D. Fergusson, Ph.D.

167,500

187,500

0

14,925

369,925

Helen H. Hobbs, M.D.

153,324

187,500

0

3,840

344,664

James M. Kilts

151,676

187,500

0

15,000

354,176

Shantanu Narayen

137,500

187,500

0

15,000

340,000

Suzanne Nora Johnson

153,324

187,500

0

14,000

354,824

Stephen W. Sanger

167,500

187,500

0

30,000

385,000

James C. Smith

153,324

187,500

0

0

340,824

*The amounts included in other compensation reflect charitable contributions made in 2016 through the Pfizer matching gift program.

Director Compensation. In 2016, Pfizer held nine board of director meetings. Each incumbent director attended at least 75% of the total number of meetings of the board of directors and the board committees on which he or she served. Non-employee directors received an annual cash retainer of $137,500 and Pfizer stock units with a value of $187,500. The Chair of each board committee received an additional cash retainer of $30,000 and the Lead Independent Director received an additional cash retainer of $50,000. Non-employee directors are required to own shares of Pfizer common stock with a value of at least five times the annual cash retainer ($687,500 in 2016) within five years of joining the board or within five years of an increase in the amount of stock ownership required. Directors may elect to defer all or part of their cash retainers until they leave the board and may be credited with Pfizer stock or invest in certain differed compensation investment plans available to employees. Directors who have met the stock ownership requirement may also defer units granted that year. 

Director Tenure. In 2016, the average director tenure on the board of directors was seven years. Mr. Cornwell, who has served since 1998, has the longest tenure. Mr. Smith and Mr. Echevarria have the shortest tenures, having joined in 2014 and 2015 respectively. All but one of the directors serve as directors on other boards. Mr. Echevarria serves as a director for The Bank of New York Mellon Corporation, Unum Group, and Xerox Corporation. Ms. Fergusson serves as a director for Mattel, Inc.. Ms. Johnson serves as a director for American International Group, Inc., Intuit Inc., and Visa Inc.. Mr. Narayen serves as a director for Adobe Systems Incorporated. Mr. Sanger serves as a director for Wells Fargo & Company. Under Pfizer’s Corporate Governance Principles, directors are required to retire at age 73.

CEO Compensation. Ian C. Read, Pfizer’s Chairman and CEO since 2011, has been with Pfizer since 1978. In 2016, Mr. Read earned a total compensation of $17,321,470. He received a salary of $1,905,250, incentive compensation of $4,000,000, stock awards of $3,984,592, option awards of $6,628,412, deferred compensation and change in pension of $331,706, and other compensation of $471,510. Frank D’Amelio, Executive Vice President, Business Operations and Chief Financial Officer, was the second highest compensated executive with a total compensation of $7,694,353. He received a base salary of $1,324,000, non-equity incentive compensation of $1,740,000, stock awards of $1,144,494, option awards of $1,835,559, deferred compensation and change in pension of $1,469,344, and other compensation of $180,956.