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 2011’s Fortune 500 and using information found in their 2011 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.  NYSE Rule 303A.06 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).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the Cardinal Health, Inc. (NYSE: CAH) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

*Dr. Mongan retired on April 18, 2011 due to health-related concerns.

** At the request of Mr. Britt’s employer, Time Warner Cable, Mr. Britt uses his employer’s corporate aircraft for travel.  This figure represents reimbursement for the use of that aircraft for travel to Cardinal board meetings. 

Director Compensation. Director compensation was comprised of an annual retainer recently increased from $75,000 to $90,000 on November 2, 2011, restricted stock units recently increased from $120,000 to $140,000, and varying amounts for chairing committees.  The chairs of the Audit Committee, Compensation Committee, and Nominating and Governance Committee received an additional $20,000, $15,000, and $10,000, respectively.  The board of directors held seven meetings during the 2011 fiscal year, which ended June 30, 2011. The directors attended 75% of the board of directors and committee meetings.  All of the directors but Dr. Mongan attended the annual shareholders’ meeting. 

Director Tenure.  Mr. Finn is the longest tenured director, having held his position since 1994.  Mr. King holds the shortest tenure after being elected in September of 2011.  All of the directors except Ms. Arnold and Ms. Spaulding are directors for at least one other company.  For instance, Mr. Britt also sits on the board and is the Chief Executive Officer of Time Warner Cable.  Although Ms. Arnold is an executive at IBM, she was still classified as independent by the Nominating and Governance Committee because payments from Cardinal represented less than 1% of IBM’s gross revenues over the past 3 years. 

Executive Compensation. George S. Barrett, Cardinal’s CEO and Chairman of the Board, received $10,214,206 in compensation last year.  Included in that figure was Mr. Barrett’s personal use of the company’s aircraft, relocation expenses, and monitoring expenses for a security system at his residence.  If Mr. Barrett is terminated before the earlier of December 31, 2012 or the June 30, 2012 annual shareholders’ meeting, he is entitled to $1,200,000 in salary, a bonus of at least 130% of his base salary, long-term incentive awards equal to at least 600% of his annual base salary, and personal use of the corporate aircraft not to exceed $100,000.  Jeffrey W. Henderson, Cardinal’s Chief Financial Officer, was compensated $3,777,410 for his services in 2011.