For years, critics have howled about executive pay, saying something must be done to curb excessive compensation.
Now some are challenging what they consider one of the root causes: pay for the directors who set chief executives' compensation packages.
Director compensation has risen sharply in the past few years as demands on boards have ratcheted up since the Sarbanes-Oxley corporate governance law passed in 2002.
A recent study by the Institutional Shareholder Services proxy advisory firm found that the average compensation for directors at the largest U.S. firms disclosed in 2005 proxies rose 14 percent, to just under $144,000. That's on top of a 23 percent increase a year earlier for what is, after all, part-time work.
"Some of these directors are making so much money," said Daniel J. Steininger, chairman of the Catholic Funds investment company in Milwaukee. "It's good work if you can get it."
The Catholic Equity Fund has sponsored resolutions at a half-dozen companies asking that shareholders be allowed to vote on director compensation. It targeted firms where it believes excessive CEO compensation is combined with poor corporate performance and governance.
When directors are overpaid, "I think they're more tolerant of nonperformance," Steininger said. "Directors paid that kind of money are not going to ask hard questions."
And growth in director pay shows few signs of slowing.
This proxy season a Chicago Tribune review of a random sample of 50 Standard & Poor's 500 companies shows 60 percent increased pay compared with a year earlier, with the average cash retainer alone rising 14 percent, to $56,500. Another 10 percent announced plans to raise compensation for 2006.
Experts said it is hard to determine what constitutes too much pay for directors. A recent study of 2005 proxies by the Corporate Library governance research center, though, found that more than two dozen board members received stock and cash valued at more than $1 million.
To be sure, experts said, demands on directors have increased sharply in recent years. A study by the National Association of Corporate Directors found that the average estimated time spent on board service in 2005 reached 191 hours, up from 156 in 2003.
At average pay of $144,000, that works out to about $753 an hour.
To some experts, however, a top-notch director is worth that and more.
"We're asking directors to do a lot more than they once did," said William H. Donaldson, the former Securities and Exchange Commission chairman, in a recent speech.
"Companies are now underpaying their directors," he said. "In the future, I hope companies will have the courage to pay directors what they're worth."
The components of board pay, typically a combination of stock and cash, are in transition.
Shirley Westcott, managing director of policy at the Proxy Governance Inc. advisory firm, said companies are awarding more restricted stock and fewer options.
Fewer firms are paying directors meeting and attendance fees, she said, but more are providing extra cash for committee chairs, especially for the head of the audit committee.
The Tribune study found that the number of firms paying meeting attendance fees dropped almost 10 percent in the most recent proxies, while the number paying extra for committee chairs rose more than 10 percent.
Of the companies that reported raising pay in their most recent proxies, 60 percent raised their retainers, while just 17 percent raised the equity component. Just over a quarter raised meeting fees, while 40 percent instituted or raised fees for committee chairs.
One company in the Tribune sample, Baltimore's T. Rowe Price Group Inc., changed its mix of director pay for 2005. It raised its cash retainer to $75,000 from $50,000, while lowering the annual option grant for continuing directors to 4,000 shares from 5,000. It also added a $1,500 fee for each committee meeting attended.
Spokesman Brian Lewbart said the firm hired an independent compensation consultant to help the company bring its director pay more in line with peers. "The conclusion was that our director compensation was more stock-based, so we changed the composition to balance it out more."
Experts said there is not necessarily an ideal mix of cash and stock pay for directors, differing over which is superior.
"It really depends on the company," Westcott said. "I think it's important to have an equity component" to help align directors' interests with those of shareholders.
Charles M. Elson, a corporate board member and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said his research indicates that higher levels of director stock ownership are associated with better company performance and more active board members when it comes to judging, and perhaps ousting, CEOs.
"It's a pretty strong link as far as I'm concerned," he said. "Intuitively, if you own something, you're going to take better care of it than if you don't own it."
In the Tribune study, just over half the companies had director stock-ownership guidelines, usually calling for directors to own shares worth a multiple of their cash retainer or a set number of shares.
One of the companies with an ownership guideline is General Electric Co., which requires non-management directors to hold at least $500,000 in GE stock or deferred stock units during their tenure.
GE, which pays its directors $100,000 in cash and $150,000 in deferred stock units annually, does not pay any meeting fees.
Critics of stock-ownership guidelines say they can penalize good directors for colleagues' failings, can restrict board membership to wealthier people and could discourage potential directors from serving on boards of troubled companies.
T. Rowe Price, for example, does not have director stock-ownership guidelines.
"It's something that the company has not felt ... was necessary," Lewbart said, adding that all directors own some stock and, importantly, "senior management has substantial stock ownership in the firm."
Charles Schwab Corp., however, requires directors to own at least $200,000 in company stock.
"You want to have your director have some part of their compensation consistent with what the shareholders feel. You don't want to have 100 percent cash and be completely immune from the stock price," CEO Charles R. Schwab said. "We want to have our directors have some stake in the game but not so much that it weighs on their good judgment."
Some experts said being invested too heavily in stock could affect that judgment.
Paul Hodgson, a senior research associate at the Corporate Library who has studied director compensation, said if a "significant amount of personal wealth is tied up" in company stock, directors might be reluctant to make decisions to build long-term value that might hurt the stock in the short-term.
Aside from levels of stock ownership, many experts and institutional investors want companies to require holding periods for directors to prevent them from selling stock, sometimes until after they leave the board.
Andrew Countryman writes for the Chicago Tribune. Tribune reporters Bill Barnhart and James P. Miller contributed to this article.