2006
Trends
in the
Corporate Governance Practices
of the
Fortune 100
IV
Shearman & Sterling llp
2006
Trends
in the
Corporate Governance Practices
of the
Fortune 100
*
* FORTUNE 500® is a registered trademark of FORTUNE magazine, a division of Time Inc.
The Fortune 100 is a subset of the FORTUNE 500. For a complete list of the Fortune 100 companies
surveyed this year, see page 46 of this survey.
2
Shearman & Sterling llp
TABLE OF CONTENTS
4
2006 Trends in the Corporate Governance
Practices of the Fortune 100
8
Director Independence
12
Director Quali>cations
16
Board Leadership
20
Board and Committee Meetings
24
Poison Pills and Classi>ed Boards
25
Majority Voting
26
Corporate Governance-Related Shareholder Proposals
28
Compensation-Related Shareholder Proposals
29
Director Compensation
30
Director Equity Compensation
32
Director Cash Compensation
41
Agreements with Named Executive O;cers
43
Stock Ownership Guidelines
46
Survey Methodology
2006
Trends in the
Corporate Governance Practices
of the Fortune 100
In this, our fourth annual survey1 of selected corporate governance practices of the Fortune 100 companies,2 certain
trends have emerged as company practices have evolved to satisfy the revised New York Stock Exchange (“NYSE”)
listing standards and the regulations promulgated by the Securities and Exchange Commission (“SEC”) pursuant to the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Those trends are highlighted in this survey along with other developments that are more accurately attributed to shareholder pressure rather than compliance with new rules or regulations.
MAJORITY VOTING
During the past three years, some of the most intense shareholder
pressure has been focused on the voting standards in director
elections. The steady increase in the number of shareholder proposals
calling for directors to be elected by a majority of the votes cast has
been fueled in large part by the campaigns of various labor unions.
Only >ve such shareholder proposals were included in the annual
proxy statements of the Fortune 100 companies surveyed in 2004,
compared with 15 such proposals in 2005 and 32 in 2006.
While directors continue to be elected by a plurality of the votes
cast in elections at the vast majority of the Fortune 100 companies, a
number of companies have adopted a mandatory director resignation
policy in the face of shareholder support for majority voting. Directors
are elected by a plurality of the votes cast at 89 of the Fortune 100
companies. Of that number, 31 have adopted policies requiring
directors who receive more withheld votes than votes for their
election to tender their resignations. In addition, >ve of the 11
Fortune 100 companies whose directors must be elected by a
majority of the votes cast have adopted a similar policy requiring
that resignations be tendered by incumbent directors who fail to
be re-elected but who would otherwise continue to serve under the
holdover provisions found in the laws of most states. Yet, even
those companies that have adopted a mandatory resignation policy
are not immune from, and have not been permitted by the SEC to
exclude from their annual proxy statements, shareholder proposals
in support of a majority voting standard in director elections. Of
the 32 Fortune 100 companies that included a shareholder proposal
in support of majority voting this proxy season, 15 had previously
put in place a mandatory director resignation policy.
TAKEOVER DEFENSES
The number of Fortune 100 companies with poison pills and/or
classi>ed boards has continued to decline in the face of continued
shareholder pressure to dismantle these takeover defenses.
Shareholder activists have consistently argued that such defenses
entrench management and directors and prevent shareholders
from receiving full value for their shares. Although the merits of
these arguments can be debated, signi>cantly fewer Fortune 100
1 This survey and the 2003, 2004 and 2005 surveys are available on the Shearman & Sterling llp website at “www.shearman.com/Corp_Gov_Publications”.
2 The Fortune 100 companies referred to herein consist of the 100 largest U.S. companies (as ranked in Fortune magazine’s FORTUNE 500® list, by revenue, for the most
recently ended >scal year) that have equity securities listed on the New York Stock Exchange (“NYSE”) or Nasdaq. For this survey, we reviewed the most recently available
Annual Reports on Form 10-K, annual proxy statements and corporate governance documents available as of June 15, 2006 for the Fortune 100 companies. For a list of the
Fortune 100 companies surveyed this year, see page 46 of this survey.
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IN 2004, 33 FORTUNE 100 COMPANIES HAD POISON PILLS IN
PLACE; THAT NUMBER FELL TO 27 IN 2005 AND 17 IN 2006.
SIMILARLY, IN 2004, 54 FORTUNE 100 COMPANIES HAD CLASSIFIED
BOARDS; THAT NUMBER FELL TO 38 IN 2005 AND 37 IN 2006.
companies have poison pills or classi>ed boards this year, and the
numbers will likely continue to decline. In 2004, 33 Fortune 100
companies had poison pills in place; that number fell to 27 in 2005
and 17 in 2006. Similarly, in 2004, 54 Fortune 100 companies had
classi>ed boards; that number fell to 38 in 2005 and 37 in 2006.
The number of Fortune 100 companies with classi>ed boards will
undoubtedly continue to decline as shareholders at eight of the 37
Fortune 100 companies with classi>ed boards were asked to vote on
board-sponsored proposals to declassify the board at their most recent
annual meeting. At the time of this survey, six of such companies had
announced the adoption of such board-sponsored proposals.
As the number of Fortune 100 companies with poison pills or
classi>ed boards has declined, so too has the number of shareholder
proposals included in the annual proxy statements of the
Fortune 100 companies advocating the redemption of poison pills
or declassi>cation of boards. From 2003 to 2006, the number of
shareholder proposals calling for redemption of, or a shareholder
vote on, poison pills declined from 25 to three, and the number of
shareholder proposals calling for the annual election of directors
declined from 10 to four.
DIRECTOR INDEPENDENCE
The Fortune 100 companies, both in policy and practice, have
continued to exceed the minimum independent director requirements
of the NYSE and Nasdaq listing standards. Although both the
NYSE and Nasdaq require that boards be composed of a majority
of independent directors, 56 of the Fortune 100 companies, up
from 54 in 2005 and 46 in 2004, have adopted standards more
stringent than a simple majority. The boards of an even larger
number of Fortune 100 companies continue to exceed their own
independence requirements. Independent directors continue to
comprise 75% or more of the boards of 82 Fortune 100 companies,
a slight increase over 81 such Fortune 100 companies surveyed in
each of 2005 and 2004. The chief executive o;cer (“CEO”) is the
only non-independent director of 37 of the Fortune 100 companies
this year and in 2005, an increase from 35 of the Fortune 100
companies in 2004.
Since implementation of the revised NYSE listing standards prior
to the 2004 proxy season, a signi>cant majority of the Fortune 100
companies have adopted categorical standards and, as a result, have
reduced the need to disclose details of immaterial relationships
with their directors. The number of Fortune 100 companies that have
adopted and disclosed categorical standards of director independence
has increased from 57 in 2004 to 72 of the Fortune 100 companies
this year. One of the most frequently adopted categorical standards
relates to charitable contributions to organizations with which
directors are a;liated, with 68 of the 72 Fortune 100 companies
with categorical standards adopting such a standard.
BOARD LEADERSHIP
One area in which change has been more gradual over the last four
years is the number of companies at which separate individuals
serve as chairman of the board and CEO. As of June 15, 2006,
separate individuals served as chairman and CEO at 24 of the
Fortune 100 companies, a signi>cant increase from the 14
Fortune 100 companies at the time of our 2003 and 2004 surveys
and the 19 Fortune 100 companies at the time of our 2005 survey.
Based upon changes announced but not yet implemented prior to
the date of this survey, it is likely that this number will continue
to increase in 2007. Of the 24 Fortune 100 companies at which
corporate governance practices
|5|
OF THE 24 FORTUNE 100 COMPANIES AT WHICH
SEPARATE INDIVIDUALS SERVE AS CHAIRMAN AND CEO,
ONLY SIX HAVE ADOPTED POLICIES REQUIRING
SEPARATION OF THE TWO FUNCTIONS.
separate individuals serve as chairman and CEO, only six have
adopted policies requiring separation of the two functions. In prior
years, any separation of the two o;ces tended to be related to the
relevant company’s CEO succession process. While succession
remains the likely explanation for many of the companies, a larger
number of the companies have separated the two o;ces in the
wake of disappointing results or corporate scandals.
As the number of the Fortune 100 companies with separate
chairmen and CEOs has increased, so too has the number of
shareholder proposals advocating that an independent director serve
as chairman of the board. While the number of such shareholder
proposals included in the annual proxy statements of the Fortune 100
companies fell between 2004 and 2005 from 19 to 12, shareholder
proposals seeking an independent chairman of the board were
included in the annual proxy statements of 26 of the Fortune 100
companies this year.
The presence of a lead independent or presiding director has
often been suggested as an alternative to a requirement that an
independent director serve as chairman of the board. Despite the
NYSE requirement that companies disclose the name or method
of selection of the non-management director who presides over
executive sessions, no single approach has emerged. One trend
that has emerged, however, is that more Fortune 100 companies
have disclosed that their lead or presiding directors, regardless of
how they are selected, have been given responsibilities in addition to
presiding over executive sessions. This year, 48 of the Fortune 100
companies disclosed that their lead or presiding directors have
additional responsibilities, compared to only 28 of the Fortune 100
companies in 2005.
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DIRECTOR TIME COMMITMENTS
The number of board and committee meetings that the Fortune 100
companies have reported has steadily increased over the past four
years. During 2003, 54 Fortune 100 companies held eight or more
meetings of the board of directors; that number increased to 66
companies in 2005. During 2003, 64 Fortune 100 companies held
eight or more audit committee meetings; that number increased to
84 companies in 2005. During 2003, 74 Fortune 100 companies
held >ve or more compensation committee meetings; that number
increased to 82 companies in 2005. During 2003, 45 Fortune 100
companies held >ve or more nominating/governance committee
meetings; that number increased to 50 companies in 2005. Each of
these increases is consistent with expectations that director time
commitments would increase, but these numbers do not provide a
complete picture of the time spent in meetings and in preparation,
for which there is no required disclosure.
Given the increased time commitment required of directors to
ful>ll their responsibilities, investors have focused on the number
of boards on which directors serve. Institutional Shareholder
Services (“ISS”) has for the past three proxy seasons recommended
withholding votes from directors who serve on more than six
public company boards. For the past two proxy seasons, ISS has
also recommended withholding votes from CEOs of publicly traded
companies who serve on more than two public company boards in
addition to their own board. Investor attention may well explain
the increase in the number of companies that place a limit on the
number of boards on which their directors may serve from 29 of
the Fortune 100 companies in 2004 to 48 of the Fortune 100
companies this year. However, in most instances, any policies
limiting the number of boards on which a director may serve either
exempt directors who at the time of adoption of the limitation serve
on a number of boards in excess of the limits or allow the board to
permit such service if it >nds that such service does not interfere
with a director’s ability to discharge his or her responsibilities to
the company.
DIRECTOR COMPENSATION
Given the increased meeting frequency of boards and their
committees, it is not surprising that director compensation levels
have also increased. Nearly all of the Fortune 100 companies, 98
in each of the last four years, paid their directors annual cash
retainers, and the aggregate amount of annual cash retainers paid
to directors has increased over the last four years. In 2003, three
Fortune 100 companies reported annual cash retainers in excess
of $80,000; that number increased to 11 of the Fortune 100
companies this year. In 2003, 55 of the Fortune 100 companies
reported annual cash retainers in amounts of $40,000 or less;
that number fell to 20 of the Fortune 100 companies this year.
The composition of director compensation has also evolved over
the last four years. The number of Fortune 100 companies that
reported the inclusion of committee retainers in their director
compensation packages has increased from 80 Fortune 100
companies in 2003 to 93 Fortune 100 companies this year. Recent
trends in the nature of equity compensation for directors re?ect
the growing consensus that options do not adequately align the
interests of directors with the long-term interests of shareholders.
The number of Fortune 100 companies this year that reported
grants of stock options as a component of director compensation
decreased to 44 from 70 in 2003. Conversely, the number of
Fortune 100 companies this year that reported grants of stock and
restricted stock increased to 48 and 42, respectively, from 31 and
25, respectively, in 2003.
STOCK OWNERSHIP GUIDELINES
In another e=ort to more closely align the interests of directors
and executive o;cers with the long-term interests of shareholders,
a signi>cant majority of the Fortune 100 companies have director
or executive o;cer stock ownership guidelines in place, and the
number of such companies has steadily increased over the last
four years. Seventy of the Fortune 100 companies reported stock
ownership guidelines for both directors and executive o;cers,
compared to 34 of the Fortune 100 companies in 2003. Another six
of the Fortune 100 companies reported guidelines for executives
only, and 11 reported guidelines for directors only, compared to 20
and 11, respectively, of the Fortune 100 companies in 2003.
Forty-one of the director stock ownership guidelines and 63 of
the executive stock ownership guidelines require the director or
executive o;cer, as applicable, to hold stock valued at a percentage
of his or her base salary or annual retainer.
RECENT TRENDS IN THE NATURE OF EQUITY
COMPENSATION FOR DIRECTORS REFLECT
THE GROWING CONSENSUS THAT OPTIONS
DO NOT ADEQUATELY ALIGN THE INTERESTS
OF DIRECTORS WITH THE LONG -TERM
INTERESTS OF SHAREHOLDERS.
corporate governance practices
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DIRECTOR INDEPENDENCE
INDEPENDENCE POLICIES
NO SUCH REQUIREMENT* [1]
Both the NYSE and Nasdaq listing standards
[43] MAJORITY OF INDEPENDENT
DIRECTORS
require that a majority of a listed company’s
directors be independent. Of the Fortune 100
companies, 56 have adopted and disclosed
OTHER SUPERMAJORITY [12]
REQUIREMENTS
(DETAILED BELOW)
stricter standards regarding the minimum
number of independent directors than required
by the relevant listing standards, compared with
2/3 INDEPENDENT [11]
DIRECTORS
54 of the Fortune 100 companies surveyed in
[33] “SUBSTANTIAL” OR
2005 and 46 in 2004.
“SIGNIFICANT” MAJORITY OF
INDEPENDENT DIRECTORS
* Tyson Foods Incorporated is a “controlled company” as
de>ned by the NYSE listing standards and has elected not
to have a majority of independent directors.
“SUBSTANTIAL” MAJORITY OF INDEPENDENT DIRECTORS,
AND NO MORE THAN TWO EMPLOYEE DIRECTORS
ALL INDEPENDENT DIRECTORS EXCEPT CEO/CHAIR
NO MORE THAN THREE NON-INDEPENDENT DIRECTORS
3
OTHER SUPERMAJORITY REQUIREMENTS
75% INDEPENDENT DIRECTORS
3
70% INDEPENDENT DIRECTORS
NUMBER OF COMPANIES
60% INDEPENDENT DIRECTORS (BUT GOAL OF 75%)
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“PREPONDERANCE” OF INDEPENDENT DIRECTORS
2
“CLEAR MAJORITY” OF INDEPENDENT DIRECTORS
1
1
0
8
2
1
1
1
1
DIRECTOR INDEPENDENCE
ACTUAL NUMBER OF INDEPENDENT DIRECTORS
Few of the Fortune 100 companies explicitly require
that at least 75% of their directors are independent.
In practice, however, the Fortune 100 companies continue
to far exceed their own requirements. Independent
INDEPENDENT DIRECTORS [82]
CONSTITUTE 75% OR MORE
OF THE BOARD
[18] INDEPENDENT DIRECTORS
CONSTITUTE LESS THAN
75% OF THE BOARD
directors constitute 75% or more of the boards of 82 of
the Fortune 100 companies surveyed this year, compared
with 81 of the Fortune 100 companies surveyed in each of
2005 and 2004. The CEO is the only non-independent
director at 37 of the Fortune 100 companies surveyed
this year and in 2005, compared with 35 of the Fortune
100 companies surveyed in 2004.
DONATIONS TO A NON-PROFIT ORGANIZATION
WITH WHICH DIRECTOR IS AFFILIATED
DIRECTOR OWNS AN INTEREST IN A PARTY THAT
HAS A RELATIONSHIP WITH THE LISTED COMPANY
DIRECTOR IS AFFILIATED WITH A COMPANY
INDEBTED TO THE LISTED COMPANY OR TO
WHICH THE LISTED COMPANY IS INDEBTED
PROFESSIONAL OR BANKING RELATIONSHIP
BETWEEN THE DIRECTOR OR FAMILY
MEMBER AND THE LISTED COMPANY
70
68
WHETHER RELATIONSHIPS BETWEEN DIRECTORS
AND THE LISTED COMPANY ARE ON TERMS
NO MORE FAVORABLE THAN AVAILABLE TO
NON-DIRECTORS
NUMBER OF COMPANIES
60
CONSULTING OR PROFESSIONAL SERVICES
CONTRACT BETWEEN THE DIRECTOR OR
FAMILY MEMBER AND THE LISTED COMPANY
50
40
30
28
21
20
10
THRESHOLD OF 1% OF GROSS REVENUES
FOR COMMERCIAL RELATIONSHIPS (COMPARED
TO NYSE STANDARD OF THE GREATER OF
$1M OR 2%)
27
21
12
10
9
5-YEAR “LOOK-BACK” PERIOD FOR
RELATIONSHIPS (COMPARED TO
NYSE 3-YEAR “LOOK-BACK” PERIOD)
CAT E G O R I C A L S T A N D A R D S
The NYSE listing standards permit boards to adopt
categorical standards to assist them in making
independence determinations as long as those
standards are disclosed in the company’s annual proxy
statement. By making a general statement that the
independent directors meet the categorical standards
adopted by the board, companies need not detail the
particular aspects of the immaterial relationships with
individual directors if the relationships are covered by
such standards. Of the Fortune 100 companies, 72 have
adopted categorical standards according to their most
recent proxy statements, compared with 70 of the
Fortune 100 companies surveyed in 2005 and 57 in
2004. The principal relationships addressed by the
categorical standards are described to the left.
0
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DIRECTOR INDEPENDENCE
C AT E G O R I C A L S T A N D A R D S – C O N T R I B U T I O N S T O
N O N - P R O F I T O R G A N I Z AT I O N S
LOOK-BACK PERIOD
35
35
PAST THREE YEARS
relating to a director’s a;liation with a non-pro>t organization that
30
PREVIOUS YEAR
25
OTHER
20
DOES NOT SPECIFY
receives contributions from the listed company, compared with 64 of the
Fortune 100 companies surveyed in 2005 and 49 in 2004. The lookback period for such contributions, the amount of such contributions
(generally expressed as a dollar value or a percentage of the non-pro>t
organization’s gross revenues or annual charitable receipts) and the
NUMBER OF COMPANIES
Of the Fortune 100 companies, 68 have adopted a categorical standard
nature of the director’s a;liation with the non-pro>t organization are
CURRENTLY RECEIVES
15
10
9
10
PAST FIVE YEARS
6
5
5
2
the three principal variations among the Fortune 100 companies that
AMOUNT OF CONTRIBUTIONS*
D I R E C T O R ’ S A F F I L I AT I O N W I T H N O N - P R O F I T O R G A N I Z AT I O N
DIRECTOR IS AN OFFICER OF
NON-PROFIT ORGANIZATION
50
50
DIRECTOR IS A DIRECTOR OF
NON-PROFIT ORGANIZATION
40
37
DIRECTOR IS A TRUSTEE OF
NON-PROFIT ORGANIZATION
33
30
DIRECTOR IS AN EMPLOYEE OF
NON-PROFIT ORGANIZATION
20
DIRECTOR IS “AFFILIATED WITH”
NON-PROFIT ORGANIZATION
10
0
3
1
DIRECTOR IS A FIDUCIARY OF
NON-PROFIT ORGANIZATION
NUMBER OF COMPANIES
NUMBER OF COMPANIES
60
60
10
* Generally expressed as a percentage of the gross revenues or
charitable receipts of the non-pro>t organization. The threshold
is frequently expressed as the greater of a percentage and a
>xed dollar amount which ranges from $50,000 to $5,000,000.
46
30
20
10
8
6
1
1
10%
$50,000
2
1
2%
5%
$200,000
$250,000
Shearman & Sterling llp
3
0
1%
10
CURRENT OR PREVIOUS
YEAR
0
have adopted such a categorical standard.
40
1
SIGNIFICANT,
MATERIAL OR
SUBSTANTIAL
PORTION OF
FUNDING
DIRECTOR INDEPENDENCE
LOOK-BACK PERIOD
C AT E G O R I C A L S T A N D A R D S – I N D E B T E D N E S S
Of the Fortune 100 companies, 27 have adopted a categorical standard
12
11
relating to a director’s a;liation with a company that is indebted to the
DOES NOT SPECIFY
listed company or to which the listed company is indebted, compared
NUMBER OF COMPANIES
10
8
with 29 of the Fortune 100 companies surveyed in 2005 and 21 in
PREVIOUS THREE YEARS
8
6
2004. The look-back period for such indebtedness, the amount of the
PREVIOUS YEAR
debt (generally expressed as a percentage of the debtor company’s
6
PREVIOUS FIVE YEARS
consolidated assets) and the nature of the director’s a;liation with the
4
other company are the three principal variations among the Fortune 100
CURRENT OR PREVIOUS YEAR
2
1
1
companies that have adopted such a categorical standard.
0
AMOUNT OF DEBT*
D I R E C T O R ’ S A F F I L I AT I O N W I T H C O M P A N Y T H AT I S I N D E B T E D T O
L I S T E D C O M PA N Y O R T O W H I C H L I S T E D C O M PA N Y I S I N D E B T E D
10
25
10
24
DIRECTOR IS AN OFFICER OF OTHER COMPANY
8
6
6
4
2
1
NUMBER OF COMPANIES
NUMBER OF COMPANIES
8
20
DIRECTOR IS AN EMPLOYEE OF OTHER COMPANY
DIRECTOR HOLDS EQUITY IN OTHER COMPANY*
15
10
9
DIRECTOR IS A PARTNER OF OTHER COMPANY
8
DIRECTOR IS A DIRECTOR OF OTHER COMPANY
5
3
2
DIRECTOR IS “ASSOCIATED” WITH OTHER
1
COMPANY
0
0
1%
2%
3%
5%
* For all but two of these companies, the amount of debt is
expressed as a percentage of consolidated assets. One
company refers to gross revenues, and the other refers to
outstanding loans.
* For all but one of these companies, the equity holding is
expressed as a percentage (ranging from 2% to 10%).
corporate governance practices
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DIRECTOR QUALIFICATIONS
S E R V I C E O N O T H E R P U B L I C C O M PA N Y B O A R D S
Of the Fortune 100 companies, 87, compared with 86 of the Fortune 100
companies surveyed in 2005 and 76 in 2004, address the issue of
service by directors on other public company boards. Of those 87
Fortune 100 companies, 48, compared with 42 Fortune 100 companies
ADDRESS SERVICE BY [87]
DIRECTORS ON OTHER
PUBLIC COMPANY BOARDS
surveyed in 2005 and 29 in 2004, place a limit on the number of public
company boards on which a director may serve. In most instances,
[13] TOPIC NOT ADDRESSED
however, companies permit directors currently serving on boards in
excess of the adopted limits to continue to do so if the board determines
that such simultaneous service will not impair the director’s ability to
ful>ll his or her responsibilities.
DIRECTOR MUST OR SHOULD NOTIFY BOARD BEFORE
JOINING ANOTHER BOARD
NUMERICAL LIMITS
SERVICE ON OTHER BOARDS CONSIDERED IN
SELECTION AND REVIEW
DIRECTORS ENCOURAGED TO LIMIT NUMBER OF
BOARDS OR TO USE THEIR DISCRETION
SERVICE ON OTHER BOARDS IN EXCESS OF LIMITS
GRANDFATHERED UNLESS BOARD DETERMINES
OTHERWISE
NUMBER OF COMPANIES
49
48
50
APPROVAL OF BOARD REQUIRED FOR CEO OR EMPLOYEE
DIRECTORS BEFORE JOINING ANOTHER BOARD
40
APPROVAL OF BOARD REQUIRED FOR ALL DIRECTORS
BEFORE JOINING ANOTHER BOARD
CASE-BY-CASE REVIEW OF NUMERICAL LIMITS
30
20
CURRENT SERVICE IN EXCESS OF LIMITS MUST BE
REDUCED WITHIN A CERTAIN PERIOD
17
12
10
8
7
5
5
2
0
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DIRECTOR QUALIFICATIONS
L I M I T S O N T H E T O TA L N U M B E R O F
BOARDS APPLICABLE TO ALL DIRECTORS
LIMITS ON BOARD SERVICE BASED UPON
W H E T H E R D I R E C T O R I S A C O M PA N Y E M P L O Y E E
8
8
8
7
7
NUMBER OF COMPANIES
NUMBER OF COMPANIES
7
6
5
4
3
3
2
6
5
5
4
3
3
2
2
1
1
1
1
0
0
3
4
5
2
6
3
5
BOARDS FOR
EMPLOYEE DIRECTORS
NUMBER OF BOARDS
6
BOARDS FOR
NON-EMPLOYEE DIRECTORS
L I M I T S O N B O A R D S E R V I C E B A S E D U P O N D I R E C T O R ’ S P R I N C I P A L O C C U P AT I O N
12
11
NUMBER OF COMPANIES
10
8
6
6
5
4
4
3
2
2
0
1
1
4 BOARDS IF
EMPLOYED AS
CEO OF ANY
COMPANY
3 BOARDS IF
EMPLOYED AS
CEO OF ANY
COMPANY
2
2
5 BOARDS
IF NOT
EMPLOYED
AS CEO OF
ANY COMPANY
4 BOARDS IF
NOT EMPLOYED
AS CEO OF ANY
COMPANY
2 BOARDS IF
EMPLOYED
AS THE CEO
OF THE
COMPANY IN
QUESTION
6 BOARDS IF
NOT EMPLOYED
AS CEO OF ANY
COMPANY
4 BOARDS IF
EMPLOYED
AS THE CEO
OF THE
COMPANY IN
QUESTION
3 BOARDS IF
EMPLOYED AS
THE CEO OF
THE COMPANY
IN QUESTION
2
2
1
1
5 BOARDS IF
NOT CEO OF
THE COMPANY
IN QUESTION
4 BOARDS IF
NOT CEO OF
THE COMPANY
IN QUESTION
3 BOARDS IF
EMPLOYED
FULL-TIME
6 BOARDS IF
NOT CEO OF
THE COMPANY
IN QUESTION
1
1
5 BOARDS IF
EMPLOYED
FULL-TIME
4 BOARDS IF
EMPLOYED
FULL-TIME
1
1
6 BOARDS IF
RETIRED FROM
FULL-TIME
EMPLOYMENT
5 BOARDS IF
RETIRED FROM
FULL-TIME
EMPLOYMENT
1
3 BOARDS IF
CHAIRMAN OF
THE BOARD
OF THE
COMPANY IN
QUESTION
7 BOARDS IF
RETIRED FROM
FULL-TIME
EMPLOYMENT
2 BOARDS IF
DIRECTOR IS
EMPLOYEE OTHER
THAN THE CEO
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DIRECTOR QUALIFICATIONS
RETIREMENT AGE
Although not required by either the NYSE or
Nasdaq listing standards, 86 of the Fortune 100
TOPIC ADDRESSED BUT [10]
NO MANDATORY
RETIREMENT AGE
companies have disclosed a mandatory retirement
TOPIC NOT ADDRESSED
[4]
AGE 73 OR GREATER
[9]
[3]
AGE 68
[20] AGE 70
age for their non-employee directors, compared
with 89 of the Fortune 100 companies surveyed in
[1]
2005 and 86 in 2004.* Of those 86 Fortune 100
AGE 71
companies, 30 permit exceptions to the retirement
age policy to be made by the board of directors
[53] AGE 72
or a committee thereof.
* Only retirement ages for non-employee directors are re?ected
in this survey. Common practice requires employee directors
(other than chairmen in certain instances) to retire from the
board when they retire from employment with the company.
TERM LIMITS
Of the Fortune 100 companies, 71, compared
with 67 of the Fortune 100 companies surveyed
in 2005 and 61 in 2004, address the topic of
term limits, but only three of the Fortune 100
companies, compared with six in 2005 and >ve
TOPIC OF TERM LIMITS [29]
NOT ADDRESSED
in 2004, have adopted mandatory term limits
[1]
18-YEAR TERM LIMIT
[1]
15-YEAR TERM LIMIT
[1]
DIRECTORS MUST SUBMIT
RESIGNATION AFTER 12 YEARS
OF SERVICE; CONTINUED
SERVICE TO BE DETERMINED
BY THE BOARD
for their directors.** Nearly all of the Fortune 100
companies that explain their rationale for not
adopting term limits cite the value of the
insight and knowledge about the company’s
operations and practices that directors who
have served on the board for an extended
period of time can provide.
** The three companies are The Procter & Gamble Company,
Target Corporation and The Walt Disney Company.
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EXPLAIN RATIONALE [68]
FOR NOT ADOPTING
TERM LIMITS
FOR DIRECTORS
DIRECTOR QUALIFICATIONS
ALL AUDIT COMMITTEE [17]
MEMBERS DISCLOSED AS
AUDIT COMMITTEE
FINANCIAL EXPERTS
AUDIT COMMITTEE FINANCIAL EXPERTS
[40] IDENTITY OF TWO OR
MORE AUDIT COMMITTEE
FINANCIAL EXPERTS
DISCLOSED
Companies must disclose whether at least one member of the audit
committee is an audit committee >nancial expert or, if not, why not.
Although SEC rules require companies with an audit committee
>nancial expert to disclose the identity of only one such expert, 57 of
AUDIT COMMITTEE HAS A
MAJORITY OF FINANCIAL
EXPERTS BUT ONLY ONE
EXPERT IS IDENTIFIED
AUDIT COMMITTEE HAS
MORE THAN ONE
FINANCIAL EXPERT BUT
ONLY ONE EXPERT
IS IDENTIFIED
[2]
the Fortune 100 companies voluntarily disclosed the identity of more
[39] IDENTITY OF ONLY ONE
AUDIT COMMITTEE
FINANCIAL EXPERT
DISCLOSED
[2]
than one audit committee >nancial expert in their most recent proxy
statements, compared with 48 Fortune 100 companies surveyed in 2005
and 42 in 2004. All audit committee members have been determined to
be audit committee >nancial experts at 17 of the Fortune 100 companies,
compared with 15 of the Fortune 100 companies surveyed in 2005 and
17 in 2004.
MORE THAN FOUR AUDIT
COMMITTEES REQUIRES
BOARD DETERMINATION
THAT ABILITY TO SERVE IS
NOT IMPAIRED
[1]
NO MORE THAN FOUR
AUDIT COMMITTEES
[1]
NO MORE THAN TWO
AUDIT COMMITTEES
[1]
MORE THAN THREE AUDIT
COMMITTEES REQUIRES
BOARD APPROVAL OR
DETERMINATION THAT
DIRECTOR’S ABILITY TO
SERVE IS NOT IMPAIRED
[38]
[37] NO LIMIT ON NUMBER OF
AUDIT COMMITTEES OR NO
RESTRICTIONS DISCLOSED
S E R V I C E O N M U LT I P L E A U D I T C O M M I T T E E S
The NYSE listing standards require that, if an audit committee member
simultaneously serves on the audit committee of more than three
[3]
[5]
CASE-BY-CASE
DETERMINATION OR
CONSIDERATION
MEMBERS SHOULD NOT
SERVE ON MORE THAN
THREE AUDIT COMMITTEES
public companies and the listed company does not limit the number of
audit committees on which its audit committee members may serve,
then the board must determine that such simultaneous service would
not impair the ability of such member to serve e=ectively on the
company’s audit committee and disclose such determination in its
[14] NO MORE THAN THREE
AUDIT COMMITTEES
annual proxy statement. Of the Fortune 100 companies surveyed this
year and in 2005, 60 limit the number of audit committees on which
their audit committee members may serve, compared with 47 of the
Fortune 100 companies surveyed in 2004.
corporate governance practices
|15|
BOARD LEADERSHIP
S E P A R AT I O N O F T H E O F F I C E S O F
CEO AND CHAIRMAN OF THE BOARD
Separate people serve as CEO and chairman of
the board at 24 of the Fortune 100 companies,*
but of those companies only six – Wal-Mart
Stores, Inc., American International Group, Inc.,
Hewlett-Packard Company, Intel Corporation,
CEO SERVES AS CHAIRMAN [76]
OF THE BOARD
[24] CEO DOES NOT SERVE AS
[6]
[19] COMPANY BELIEVES THAT
CHAIRMAN OF THE BOARD
The Walt Disney Company and Bristol-Myers
Squibb Company – have adopted an explicit policy
of splitting the two o;ces. Separate people
served as CEO and chairman of the board at
19 of the Fortune 100 companies surveyed in
2005 and 14 in each of 2004 and 2003.
* Included in this number is Merck & Co., Inc., where
the executive committee (which is composed solely of
independent directors) collectively performs the duties
of chairman of the board.
P O L I C I E S O N S E P A R AT I O N O F
THE OFFICES OF CEO AND CHAIR
Sixty-eight of the Fortune 100 companies address
the topic of whether the two o;ces should be
COMPANY POLICY CURRENTLY
REQUIRES THAT
SEPARATE INDIVIDUALS
SERVE AS CEO AND
CHAIRMAN OF THE BOARD
OFFICES SHOULD NOT BE
SEPARATED
separated. Of those 68 Fortune 100 companies,
only 19 of those surveyed this year and in 2005
speci>cally state that the o;ces of CEO and
chairman of the board should not be separated,
compared with 18 of the Fortune 100 companies
surveyed in 2004.
16
Shearman & Sterling llp
ADDRESS TOPIC BUT COMPANY [43]
HAS NO FORMAL POLICY OR
DIRECTORS ARE FREE TO
DECIDE WHAT IS IN
COMPANY’S BEST INTEREST
[32] TOPIC NOT ADDRESSED
BOARD LEADERSHIP
MOST SENIOR INDEPENDENT
DIRECTOR
[1]
[21] CHOSEN BY INDEPENDENT OR
SELECTION OF PRESIDING DIRECTORS
FOR EXECUTIVE SESSIONS
NON-MANAGEMENT DIRECTORS
LEAD OR PRESIDING DIRECTOR [15]
CHOSEN BY BOARD
[1]
VICE-CHAIRMAN
[1]
[1]
SECRETARY*
[1]
NOT REQUIRED TO BE DISCLOSED
(NASDAQ COMPANY)
EXECUTIVE COMMITTEE
VICE-CHAIRMAN
EXECUTIVE COMMITTEE CHAIR
[2]
NON-EXECUTIVE CHAIRMAN
[6]
COMPENSATION COMMITTEE CHAIR
[1]
name, or the method of selection, of the
director presiding over executive sessions of
non-management directors be disclosed in a
[23] NOMINATING/GOVERNANCE
ROTATE (DETAILED BELOW) [18]
AUDIT AND COMPENSATION
COMMITTEE CHAIRS ARE
CO-LEAD DIRECTORS
The NYSE listing standards require that the
[6]
[1]
[2]
company’s annual proxy statement. Since the
COMMITTEE CHAIR
implementation of this requirement, the
CHAIR OF COMMITTEE WITH
JURISDICTION OVER THE
SUBJECT MATTER OF MEETING
Fortune 100 companies have adopted a wide
AUDIT COMMITTEE CHAIR
variety of methods for selecting their presiding
directors, and no standard approach has developed.
* A non-management director serves as Secretary.
R O T AT I O N O F P R E S I D I N G D I R E C T O R S
ROTATE AMONG CHAIRS OF ALL COMMITTEES COMPRISED
ENTIRELY OF INDEPENDENT DIRECTORS
ROTATE AMONG AUDIT, NOMINATING/GOVERNANCE
AND COMPENSATION COMMITTEE CHAIRS
ALTERNATE BETWEEN COMPENSATION AND
NOMINATING/GOVERNANCE COMMITTEE CHAIRS
ALTERNATE BETWEEN AUDIT AND NOMINATING/GOVERNANCE
COMMITTEE CHAIRS
5
5
ROTATE ACCORDING TO YEARS OF SERVICE
NUMBER OF COMPANIES
4
4
ROTATE AMONG AUDIT, NOMINATING/GOVERNANCE,
COMPENSATION AND EXECUTIVE COMMITTEE CHAIRS
3
ROTATE AMONG INDEPENDENT DIRECTORS
3
CHOSEN BY DIRECTORS AT EXECUTIVE SESSION
2
1
1
1
1
1
1
HYBRID (CHAIR OF COMMITTEE WITH JURISDICTION OVER
SUBJECT MATTER AND OTHERWISE ROTATE ALPHABETICALLY)
1
0
corporate governance practices
|17|
BOARD LEADERSHIP
DUTIES OF PRESIDING /LEAD INDEPENDENT DIRECTORS
Of the Fortune 100 companies, 48 have given their lead or presiding
director responsibilities in addition to setting the agenda for, and
presiding over, executive sessions, compared with 28 of the Fortune 100
[48] LEAD INDEPENDENT/PRESIDING
NO ADDITIONAL DUTIES [52]
SPECIFIED FOR CHAIR OF
EXECUTIVE SESSIONS
companies surveyed in 2005. The principal responsibilities given to
presiding directors at these companies are detailed below.
DIRECTOR IS GIVEN ADDITIONAL
DUTIES (DETAILED BELOW)
REVIEWS, ADVISES ON OR APPROVES BOARD MEETING AGENDAS
ACTS AS A LIAISON BETWEEN THE NON-MANAGEMENT DIRECTORS
AND EACH OF THE CEO/CHAIR AND MANAGEMENT
REVIEWS OR ADVISES ON BOARD MEETING MATERIALS OR
INFORMATIONAL NEEDS
REVIEWS, ADVISES ON OR APPROVES BOARD MEETING SCHEDULE
PRESIDES AT BOARD MEETINGS IN THE ABSENCE OF THE CHAIR
CONSULTS WITH MAJOR SHAREHOLDERS AS REQUESTED
PARTICIPATES IN PERFORMANCE REVIEW OF THE CEO
40
37
COMMUNICATES DIRECTOR FEEDBACK TO THE CEO
NUMBER OF COMPANIES
35
30
ADVISES ON THE SELECTION OF COMMITTEE CHAIRS
28
20
15
10
5
0
18
RECOMMENDS ADVISORS/CONSULTANTS TO THE BOARD
24
25
Shearman & Sterling llp
20
ASSISTS IN ENSURING COMPLIANCE WITH
GOVERNANCE GUIDELINES
18
12
ASSISTS IN RECRUITMENT OF NEW DIRECTORS
11
7
6
5
REVIEWS SHAREHOLDER COMMUNICATIONS
AND/OR EMPLOYEE COMPLAINTS
3
2
1
1
SERVES AS CHAIR IN EVENT OF UNFORESEEN VACANCY
BOARD LEADERSHIP
FREQUENCY OF EXECUTIVE SESSIONS
The NYSE listing standards require that the non-management directors of each company
meet at regularly scheduled executive sessions outside the presence of management. Some
companies have set a minimum number of executive sessions. Four of the Fortune 100
companies include an executive session of non-management directors as part of every board
meeting, compared with eight of the Fortune 100 companies surveyed in 2005, and 32 of
the Fortune 100 companies include an executive session of non-management directors as
part of every regularly scheduled board meeting, compared with 20 of the Fortune 100
companies surveyed in 2005.
AT LEAST 3 MEETINGS ANNUALLY [11]
[13] AT LEAST 4 MEETINGS ANNUALLY
AT LEAST 2 MEETINGS ANNUALLY [19]
[4]
AT LEAST 1 MEETING ANNUALLY
[3]
AS PART OF EVERY BOARD MEETING
[32] AS PART OF EVERY REGULARLY
SCHEDULED BOARD MEETING
TOPIC NOT ADDRESSED OR NO [18]
MINIMUM NUMBER OF EXECUTIVE
SESSIONS REQUIRED
corporate governance practices
|19|
BOARD AND COMMITTEE MEETINGS
NUMBER OF BOARD MEETINGS IN 2005*
13 OR MORE MEETINGS [11]
[9]
5 OR FEWER MEETINGS
Over the past few years, the number of board
meetings has steadily increased. During 2002,
51 of the Fortune 100 companies surveyed held
12 MEETINGS [10]
[12] 6 MEETINGS
11 MEETINGS
[5]
10 MEETINGS
[9]
[13] 7 MEETINGS
9 MEETINGS [14]
[17] 8 MEETINGS
eight or more meetings; that number increased
to 54 Fortune 100 companies in 2003, 65 in
2004 and 66 in 2005.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
MINIMUM NUMBER OF
BOARD MEETINGS
[9]
Of the Fortune 100 companies, 51 set a
[10] 5 MEETINGS
4 MEETINGS
minimum number of board meetings each
year, compared with 50 of the Fortune 100
companies surveyed in 2005 and 40 in 2004.
The minimum number ranges from four to
10 meetings.
TOPIC NOT ADDRESSED [49]
OR NO MINIMUM
NUMBER REQUIRED
[15] 6 MEETINGS
[4]
7 MEETINGS
[12] 8 MEETINGS
[1]
20
Shearman & Sterling llp
10 MEETINGS
BOARD AND COMMITTEE MEETINGS
13 OR MORE MEETINGS [14]
12 MEETINGS
[8]
11 MEETINGS [14]
[4]
4 MEETINGS
[4]
5 MEETINGS
[3]
6 MEETINGS
[5]
7 MEETINGS
NUMBER OF AUDIT COMMITTEE
MEETINGS IN 2005*
The number of audit committee meetings has
increased at an even greater pace than meetings
of the full board of directors. During 2003,
[14] 8 MEETINGS
64 of the Fortune 100 companies held eight or
more meetings of the audit committee; that
10 MEETINGS [10]
number increased to 80 Fortune 100 companies
[24] 9 MEETINGS
in 2004 and 84 in 2005.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
IN CONJUNCTION WITH
REGULARLY SCHEDULED
BOARD MEETINGS
[2]
[2]
3 MEETINGS
MINIMUM NUMBER OF AUDIT
COMMITTEE MEETINGS
TOPIC NOT ADDRESSED [12]
OR NO MINIMUM
NUMBER REQUIRED
7 OR MORE MEETINGS
Of the Fortune 100 companies, 88 require a
[3]
minimum number of audit committee meetings
6 MEETINGS [12]
[66] 4 MEETINGS
each year, compared with 86 of the Fortune 100
companies surveyed in 2005 and 85 in 2004.
5 MEETINGS
[3]
The minimum number of meetings ranges
from three to nine.
corporate governance practices
|21|
BOARD AND COMMITTEE MEETINGS
8-12 MEETINGS [11]
N U M B E R O F N O M I N AT I N G / G O V E R N A N C E
COMMITTEE MEETINGS IN 2005*
7 MEETINGS
1 MEETING
[5]
2 MEETINGS
[3]
During 2003, 45 of the Fortune 100 companies
held >ve or more meetings of the nominating/
[2]
[15] 3 MEETINGS
6 MEETINGS [14]
governance committee; that number increased
to 55 Fortune 100 companies in 2004 and
decreased to 50 in 2005.
5 MEETINGS [22]
[28] 4 MEETINGS
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
MINIMUM NUMBER OF
N O M I N AT I N G / G O V E R N A N C E
COMMITTEE MEETINGS
Of the Fortune 100 companies, 60 require a
minimum number of nominating/governance
[3]
TOPIC NOT ADDRESSED [40]
OR NO MINIMUM
NUMBER REQUIRED
1 MEETING
[25] 2 MEETINGS
committee meetings each year, compared with
60 of the Fortune 100 companies surveyed in
2005 and 51 in 2004. The minimum number
ranges from one to four meetings.
IN CONJUNCTION WITH
REGULARLY SCHEDULED
BOARD MEETINGS
[1]
[15] 3 MEETINGS
[16] 4 MEETINGS
22
Shearman & Sterling llp
BOARD AND COMMITTEE MEETINGS
10 OR MORE MEETINGS [13]
9 MEETINGS
[2]
1 MEETING
[1]
2 MEETINGS
[4]
3 MEETINGS
N U M B E R O F C O M P E N S AT I O N
COMMITTEE MEETINGS IN 2005*
[5]
During 2003, 74 of the Fortune 100 companies
8 MEETINGS [13]
[11] 4 MEETINGS
held >ve or more meetings of the compensation
committee; that number increased to 81 Fortune
100 companies in 2004 and 82 in 2005.
7 MEETINGS [16]
[21] 5 MEETINGS
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
[14] 6 MEETINGS
NO MINIMUM [36]
NUMBER REQUIRED
[3]
1 MEETING
[10] 2 MEETINGS
M I N I M U M N U M B E R O F C O M P E N S AT I O N
COMMITTEE MEETINGS
Of the Fortune 100 companies, 62 require a
minimum number of compensation committee
meetings each year, compared with 60 of the
[12] 3 MEETINGS
IN CONJUNCTION WITH
REGULARLY SCHEDULED
BOARD MEETINGS
[2]
5 OR MORE MEETINGS
[3]
Fortune 100 companies surveyed in 2005 and
54 in 2004. The minimum number of meetings
ranges from one to eight.
[34] 4 MEETINGS
corporate governance practices
|23|
POISON PILLS AND CLASSIFIED BOARDS
POISON PILL
Of the Fortune 100 companies, 17 have a
shareholder rights plan or “poison pill”,
compared with 27 of the Fortune 100
companies surveyed in 2005 and 33 in 2004.
COMPANY DOES [83]
NOT HAVE A
“POISON PILL”
[17] COMPANY HAS
A “POISON PILL”
CLASSIFIED BOARD
Of the Fortune 100 companies, 37 have a classi>ed
or staggered board of directors, compared with
38 of the Fortune 100 companies surveyed in
2005 and 54 in 2004. Of those 37 Fortune 100
companies, the shareholders at eight companies
were asked to vote on board-sponsored proposals
[37] BOARD IS
BOARD IS NOT [63]
CLASSIFIED
CLASSIFIED*
at the most recent annual meeting. Six companies
have disclosed the successful adoption of the
declassi>cation proposals; as of June 15, 2006,
one company had not disclosed the results, and
one company had not had its annual meeting.
24
Shearman & Sterling llp
* Six of these Fortune 100 companies are in
the process of declassifying their boards.
MA J O R I T Y V O T I N G
V O T I N G S TA N D A R D S I N D I R E C T O R E L E C T I O N S
Although directors continue to be elected by a plurality of the votes cast
DIRECTORS ELECTED
BY MAJORITY OF
VOTES CAST
[6]
DIRECTORS ELECTED
BY MAJORITY OF VOTES
CAST BUT INCUMBENT
DIRECTORS WHO FAIL TO
BE RE-ELECTED MUST
TENDER RESIGNATION
[5]
at 89 of the Fortune 100 companies surveyed this year, 31 of those
companies have adopted a policy that directors receiving more withheld
votes than votes for their election must submit or tender their resignation
[58] DIRECTORS ELECTED BY
PLURALITY OF VOTES CAST
from the board of directors. Of the 11 Fortune 100 companies that
require directors to be elected by a majority of the votes cast, only >ve
of those companies address the issue of holdover directors by requiring
DIRECTORS ELECTED [31]
BY PLURALITY OF VOTES
CAST BUT DIRECTOR MUST
TENDER RESIGNATION IF
MORE VOTES WITHHELD
THAN CAST FOR HIS OR
HER ELECTION
incumbent directors to submit their resignation from the board of
directors following their failure to receive a majority of the votes cast in
favor of their election. None of the 36 Fortune 100 companies that have
adopted a director resignation policy prohibit the board of directors from
allowing the director in question to continue in o;ce.
Most of the 36 Fortune 100 companies that have adopted a director resignation policy include this policy in their governance guidelines and require that the full
board of directors determine whether to accept the tendered resignation following the receipt of a recommendation from the nominating/governance committee.
L O C AT I O N O F R E S I G N AT I O N R E Q U I R E M E N T S
30
C O N S I D E R AT I O N O F R E S I G N AT I O N
29
DETERMINED BY BOARD
FOLLOWING NOMINATING/
GOVERNANCE COMMITTEE
RECOMMENDATION
30
GOVERNANCE GUIDELINES ONLY
25
DETERMINED BY INDEPENDENT
DIRECTORS FOLLOWING
NOMINATING/GOVERNANCE
COMMITTEE RECOMMENDATION
25
GOVERNANCE GUIDELINES AND
BYLAWS
20
BYLAWS ONLY
15
10
PROXY STATEMENT
5
5
NUMBER OF COMPANIES
NUMBER OF COMPANIES
25
20
DETERMINED BY BOARD OF
DIRECTORS
10
4
5
1
DETERMINED BY INDEPENDENT
DIRECTORS
15
1
DETERMINED BY INDEPENDENT
DIRECTORS FOLLOWING BOARD
CONSIDERATION
3
2
1
1
NO PROCEDURE SPECIFIED
0
0
corporate governance practices
|25|
CORPORATE GOVERNANCE-RELATED SHAREHOLDER PROPOSALS
The following corporate governance-related shareholder proposals were most frequently included
in the 2003, 2004, 2005 and 2006 proxy statements of the Fortune 100 companies:
35
2006
2005
2004
2003
32**
30
NUMBER OF COMPANIES
26
25
25
19
20
15
15
12
15
11
11
10
8
8
5
4*
5
5
4
3
2
0
1
1
15
10
10
9
8
7
4
4
5
4
3
2
4
3
0
0
0
INDEPENDENT
BOARD CHAIRMAN
(NOT CURRENT OR
PAST CEO)
TERM LIMIT FOR
OUTSIDE
DIRECTORS
TWO NOMINEES
FOR EACH
DIRECTOR
POSITION
INCREASE BOARD
INDEPENDENCE
CUMULATIVE
VOTING FOR
DIRECTORS
ANNUAL ELECTION
OF DIRECTORS
DIRECTOR
ELECTIONS BY
MAJORITY VOTE
REMOVAL OF
SUPERMAJORITY
REQUIREMENT
INDEPENDENT BOARD CHAIRMAN:
CUMULATIVE VOTING FOR DIRECTORS:
DIRECTOR ELECTIONS BY MAJORITY VOTE:
Requests that the board adopt a policy requiring its
chairman to be an independent director and not the
current or former CEO.
Requests that the board take steps to provide for
cumulative voting for directors by granting each
shareholder a number of votes equal to the number
of shares owned by such shareholder multiplied by
the number of directors to be elected and the right
to cast all votes for a single candidate.
Requests that the board amend the company’s
governance documents to provide that nominees
standing for election must receive the affirmative
vote of a majority of the votes cast.
TERM LIMIT FOR OUTSIDE DIRECTORS:
Requests that the board establish a policy limiting
directors’ tenure, in most instances, to six years.
ANNUAL ELECTION OF DIRECTORS:
TWO NOMINEES FOR EACH DIRECTOR POSITION:
Requests that the board be required to nominate two
candidates for each board seat.
INCREASE BOARD INDEPENDENCE:
Requests that the board adopt a policy establishing
a minimum percentage of independent directors.
26
REDEMPTION OF,
OR SHAREHOLDER
VOTE ON,
POISON PILL
Shearman & Sterling llp
Requests that the board amend the company’s
governance documents to require each director to
be elected or re-elected annually.
REDEMPTION OF, OR SHAREHOLDER VOTE ON,
POISON PILL:
Requests that the board submit the adoption,
maintenance or extension of any poison pill to
a shareholder vote.
REMOVAL OF SUPERMAJORITY REQUIREMENT:
Requests that the board eliminate all supermajority
voting standards, unless required by law, and adopt
a simple majority voting standard.
* Includes one proposal in favor of 12-year term limits.
** Includes one proposal in support of a bylaw amendment disqualifying
a director from standing for re-election if such director was not
elected by the majority of votes cast in the previous election.
CORPORATE GOVERNANCE-RELATED SHAREHOLDER PROPOSALS
25
2006
2005
2004
2003
NUMBER OF COMPANIES
20
15
10
5
2
2
3
3*
2
1
0
1
1
1
0
0
1
0
0
1
0
0
1
1
0
0
1
0
1
0
0
0
1
1
1
0
0
REIMBURSEMENT
OF PROXY
EXPENSES
ESTABLISH
A MAJORITY VOTE
SHAREHOLDER
COMMITTEE
1
0
0
0
ONE VOTE
PER SHARE
LIMIT OUTSIDE
DIRECTORSHIPS
INDEPENDENT
COMMITTEE
TO ADDRESS
CONFLICTS OF
INTEREST
DIRECTORS’
LIABILITY FOR
GROSSLY
NEGLIGENT
CONDUCT
ESTABLISH AN
OFFICE OF THE
BOARD OF
DIRECTORS
ADOPT GLOBAL
CORPORATE
STANDARDS
ONE VOTE PER SHARE:
ESTABLISH AN OFFICE OF THE BOARD OF DIRECTORS:
Requests that the board recapitalize the company so that
all shares are entitled to only one vote.
Requests that the board establish an O;ce of the Board
of Directors to enable direct shareholder communication
with the board.
NO GREENMAIL
ESTABLISH A MAJORITY VOTE
SHAREHOLDER COMMITTEE:
Requests that the board limit the number of public
company boards on which a director may serve
at one time.
ADOPT GLOBAL CORPORATE STANDARDS:
Requests that the board establish a majority vote
shareholder committee to consider shareholder
proposals that receive a majority of the votes cast
but are not adopted by the board.
Requests that the board adopt a global set of
corporate standards.
NO GREENMAIL:
INDEPENDENT COMMITTEE TO ADDRESS
CONFLICTS OF INTEREST:
REIMBURSEMENT OF PROXY EXPENSES:
Requests that the board forbid the payment
of greenmail.
LIMIT OUTSIDE DIRECTORSHIPS:
Requests that the board establish an independent
committee to address con?icts of interest.
Requests that the bylaws be amended to provide for the
reimbursement of certain expenses related to successful
shareholder proposals or the contested election of less
than 50% of the directors.
DIRECTORS’ LIABILITY FOR
GROSSLY NEGLIGENT CONDUCT:
Requests that the company’s charter be amended so
that directors are not exempt from personal liability
for gross negligence.
* Includes one proposal seeking adoption of a policy that
key committees be chaired by individuals who are not
over committed.
corporate governance practices
|27|
COMPENSATION-RELATED SHAREHOLDER PROPOSALS
The following compensation-related shareholder proposals were most frequently included
in the 2003, 2004, 2005 and 2006 proxy statements of the Fortune 100 companies:
2006
2005
2004
18
20
16
NUMBER OF COMPANIES
2003
16
12
11
10
10
15
14
15
9
12
11
9
9
9
8
8
8
7
6
5
3
6
6
6
4
2
3
3
0
0
0
0
0
0
0
0
0
0
EXECUTIVE
COMPENSATION
GENERALLY
LIMITATION
ON SEVERANCE
AMOUNTS
PAY DISPARITY
PERFORMANCEBASED EQUITY OR
INCENTIVE
COMPENSATION
EXECUTIVE COMPENSATION GENERALLY:
Various proposals requesting, among other things,
(i) the establishment of a cap on total CEO compensation,
(ii) the reduction of executive compensation and (iii)
recoupment of executive performance-based compensation
in the event of a signi>cant restatement of company
>nancial results.
LIMITATION ON SEVERANCE AMOUNTS:
Requests that the board either (i) seek shareholder
approval of future severance agreements with senior
executives that provide for bene>ts exceeding 2.99
times the sum of the executive’s base salary plus bonus
or (ii) otherwise limit severance amounts.
PROHIBITION OF
EXECUTIVE
EQUITY GRANTS
SHAREHOLDER
APPROVAL
total compensation paid to the CEO in a given year
equal to 50 times the average compensation paid to
employees who are not exempt from coverage under
the Fair Labor Standards Act in the prior year.
PERFORMANCE-BASED EQUITY OR
INCENTIVE COMPENSATION:
Requests that the board adopt a policy requiring
that future equity grants and incentive awards be
performance-based or indexed or linked to a peer
group performance index.
DISCLOSURE
REDUCE CEO
COMPENSATION
DIRECTOR
COMPENSATION
bonus and/or (iii) all compensation in excess of the
162(m) limitations.
DISCLOSURE:
Requests enhanced disclosure of compensation paid to
executives and/or directors.*
REDUCE CEO COMPENSATION:
Requests reduction in CEO compensation in the event
of an unusual reduction in force.
DIRECTOR COMPENSATION:
PROHIBITION OF EXECUTIVE EQUITY GRANTS:
Requests that the board adopt a policy prohibiting
future equity grants to executives.
Requests that 50% of director compensation be paid
in restricted stock.
PAY DISPARITY:
Requests that the board either (i) prepare and make
available to shareholders a report compiling total
compensation for the company’s top executives and
its lowest-paid workers or (ii) establish a cap on the
28
Shearman & Sterling llp
SHAREHOLDER APPROVAL:
Requests that the company obtain shareholder approval
of (i) extraordinary compensation, (ii) severance amounts
in excess of 2.99 times the executive’s base salary plus
* Note that for the 2007 proxy season, the SEC’s enhanced
compensation disclosure rules will be in e=ect.
DIRECTOR COMPENSATION
RECOMMENDED BY NOMINATING/GOVERNANCE COMMITTEE
AND APPROVED BY BOARD
RECOMMENDED BY COMPENSATION COMMITTEE AND
APPROVED BY BOARD
D E T E R M I N AT I O N O F
D I R E C T O R C O M P E N S AT I O N
56
60
RECOMMENDED BY BOTH COMPENSATION AND NOMINATING/
GOVERNANCE COMMITTEES AND APPROVED BY BOARD
DETERMINED BY COMPENSATION COMMITTEE
NUMBER OF COMPANIES
50
Of the Fortune 100 companies, 99
have publicly disclosed how their
board compensation is determined,
compared with 98 of the Fortune 100
companies surveyed in 2005 and
96 in each of 2004 and 2003.
RECOMMENDED BY BOARD AFFAIRS COMMITTEE AND
APPROVED BY BOARD
40
31
OTHER
30
APPROVED BY CORPORATE GOVERNANCE AND/OR
NOMINATING COMMITTEE
20
NOT PUBLICLY SPECIFIED
10
3
3
2
2
1
1
1
APPROVED BY THE BOARD
0
O V E R A L L C O M P O S I T I O N O F D I R E C T O R C O M P E N S AT I O N
2006
98
98
2005
98
100
2004
2003
98
93
91
84
80
83 84
NUMBER OF COMPANIES
80
70
65
65
63
59
55
60
44
54
50
47
53
48
36
40
50
42
36
31
30
25
20
0
CASH RETAINER
COMMITTEE
RETAINERS
OTHER BENEFITS
STOCK OPTIONS
OR STOCK
APPRECIATION
RIGHTS
RESTRICTED
STOCK OR UNITS
MEETING
ATTENDANCE FEES
NON-RESTRICTED
STOCK OR UNITS
corporate governance practices
|29|
DIRECTOR EQUITY COMPENSATION
Ninety-six of the Fortune 100 companies grant equity-based compensation awards to
their non-employee directors in the form of stock options, restricted stock / units
and/ or non-restricted stock / units. Of these 96 companies, >ve permit directors to
choose their form of equity awards.
D I R E C T O R S T O C K O P T I O N A N D S T O C K A P P R E C I AT I O N R I G H T G R A N T S
Forty-two of the Fortune 100 companies grant stock options, and two of the Fortune 100 companies
grant stock appreciation rights (SARs), as a component of directors’ compensation. Stock option
grants can be made annually or upon initial election to the board and may be expressed as a
dollar value, a speci>c number of options or SARs or both.
TIMING OF STOCK OPTION GRANTS
VA L U E O F S T O C K O P T I O N G R A N T S
29
30
GRANT EXPRESSED AS SPECIFIC
NUMBER OF OPTIONS
BOTH INITIAL AND
ANNUAL GRANTS
[6]
ANNUAL GRANTS ONLY [36]
[56] NO STOCK OPTIONS
GRANTED
[2]
INITIAL GRANTS ONLY
NUMBER OF COMPANIES
25
20
9
10
5
0
30
Shearman & Sterling llp
GRANT EXPRESSED
AS A DOLLAR VALUE
15
6
BOTH
DIRECTOR EQUITY COMPENSATION
DIRECTOR RESTRICTED STOCK OR UNIT GRANTS
DIRECTOR NON-RESTRICTED STOCK OR UNIT GRANTS
Of the Fortune 100 companies, 42 grant restricted stock or units as
Of the Fortune 100 companies, 48 grant non-restricted stock or units
a component of directors’ compensation, compared with 47 of the
as a component of their directors’ compensation, compared with 36 of
Fortune 100 companies surveyed in 2005. Restricted stock and unit
the Fortune 100 companies surveyed in 2005. Stock and unit grants
grants can be made annually or upon initial election to the board and
may be made annually or upon initial election to the board and may be
may be expressed as a dollar value or a speci>c number of shares.
expressed as a dollar value or a speci>c number of shares.
TIMING OF RESTRICTED STOCK OR UNIT GRANTS
TIMING OF NON-RESTRICTED STOCK OR UNIT GRANTS
ANNUAL [32]
GRANTS
ONLY
[4]
[6]
NO RESTRICTED [58]
STOCK OR
UNITS GRANTED
INITIAL GRANTS
ONLY
[3]
INITIAL GRANTS ONLY
[8]
BOTH INITIAL AND
ANNUAL GRANTS
ANNUAL [37]
GRANTS ONLY
BOTH INITIAL
AND ANNUAL
GRANTS
[52] NO NON-RESTRICTED
STOCK OR UNITS
GRANTED
VA L U E O F R E S T R I C T E D S T O C K O R U N I T G R A N T S
VA L U E O F N O N - R E S T R I C T E D S T O C K O R U N I T G R A N T S
35
30
25
GRANT EXPRESSED AS A DOLLAR VALUE
20
GRANT EXPRESSED AS SPECIFIC
NUMBER OF SHARES
15
BOTH
11
10
6
NUMBER OF COMPANIES
NUMBER OF COMPANIES
25
31
30
GRANT EXPRESSED AS A
DOLLAR VALUE
25
GRANT EXPRESSED AS SPECIFIC
NUMBER OF SHARES
20
BOTH
15
10
5
5
0
0
9
8
corporate governance practices
|31|
DIRECTOR CASH COMPENSATION
2006
2005
2004
32
NUMBER OF COMPANIES
30
35
35
34
35
A M O U N T O F A N N U A L C A S H R E TA I N E R
31
Ninety-eight of the Fortune 100 companies pay annual cash retainers
27
25
to directors. Cash portions of annual retainer amounts range from
22
19
20
$20,000 to $200,000.
19
15
8
10
5
5
5
1
5
3
2
1
1
0
1
2
1
2
2
0
1
0
0
$20,000
OR LESS
$20,00140,000
$40,00160,000
$60,00180,000
$80,001100,000
$100,001130,000
$130,001150,000
$150,000
OR MORE
NOT PUBLICLY
DISCLOSED
D E F E R R A L O F B O A R D C O M P E N S AT I O N
EQUITY ELECTIONS IN LIEU OF CASH
Of the Fortune 100 companies, 84 require or permit directors to defer
Of the Fortune 100 companies, 42* permit directors to elect to receive
all or a portion of their cash compensation, compared with 87 of the
options, stock, restricted stock or a combination thereof, in lieu of all or
Fortune 100 companies surveyed in 2005 and 79 in 2004.
a portion of their annual cash retainers, compared with 49 of the
Fortune 100 companies surveyed in 2005 and 64 in 2004.
35
[44]
[3]
REQUIRE DEFERRAL OF
A PORTION OF ANNUAL
RETAINER AND FEES
[37] BOTH PERMIT DEFERRAL
DO NOT SPECIFY
DEFERRAL OF ANNUAL
RETAINER AND FEES
[16]
OF ANNUAL RETAINER
AND FEES AT DIRECTOR’S
ELECTION AND REQUIRE
DEFERRAL OF A PORTION
OF ANNUAL RETAINER
AND FEES
NUMBER OF COMPANIES
30
PERMIT DEFERRAL OF
ANNUAL RETAINER AND
FEES AT THE ELECTION
OF THE DIRECTOR
28
STOCK OR UNITS
25
RESTRICTED STOCK OR UNITS
20
15
10
5
OPTIONS
OTHER
11
8
2
0
* Two of these companies provide directors who make
such an election with additional equity grants.
32
Shearman & Sterling llp
DIRECTOR CASH COMPENSATION
M E E T I N G AT T E N D A N C E F E E S
Fifty of the Fortune 100 companies pay board
and/or committee meeting attendance fees.
[1]
BOTH BOARD AND [45]
COMMITTEE MEETING
ATTENDANCE FEES
COMMITTEE MEETING
ATTENDANCE FEES ONLY
BOARD MEETING
ATTENDANCE FEES ONLY
[50] NO MEETING
[4]
ATTENDANCE FEES
A M O U N T O F M E E T I N G AT T E N D A N C E F E E S
20
2006
2005
2004
2003
The amount of the meeting attendance fees di=ers
17
based on the type of meeting (e.g., board or
16
NUMBER OF COMPANIES
15
15
13
13
committee) and if it is in person or telephonic.
13
12
9
9
10
7
7
7
6
6
5
5
4
5
4
3
3
2
2
2
1
0
0
2
1
0
BOARD MEETING
FEE IS HIGHER
THAN COMMITTEE
MEETING FEE
EXECUTIVE
SESSIONS/
SPECIAL BOARD
MEETING FEES
PAID
MEETING FEES
FOR TELEPHONIC
MEETINGS/
UNANIMOUS
WRITTEN CONSENT
ARE LOWER
THAN IN-PERSON
MEETING FEES
COMMITTEE/
BOARD
CHAIRMAN
MEETING FEE
IS HIGHER THAN
COMMITTEE/
BOARD MEMBER
MEETING FEE
AUDIT
COMMITTEE
MEETING FEE
IS HIGHER
THAN OTHER
COMMITTEE
MEETING FEES
MEETING FEES
ARE PAID ONLY
IF THE MINIMUM
NUMBER OF
REQUIRED
MEETINGS
IS EXCEEDED
BOARD CHAIRMAN
MEETING FEE IS
HIGHER THAN
COMMITTEE
CHAIRMAN
MEETING FEE
corporate governance practices
|33|
DIRECTOR CASH COMPENSATION
B O A R D M E E T I N G AT T E N D A N C E F E E S
20
18
fees to members of the board. The amounts of such
fees range from $900 to $3,000.*
* One company pays a $40,000 >xed annual meeting retainer to
all board and committee members in lieu of a per meeting fee.
NUMBER OF COMPANIES
Forty-six of the Fortune 100 companies pay meeting
15
12
12
10
5
3
1
0
$900
C O M M I T T E E M E E T I N G AT T E N D A N C E F E E S
$9011,400
$1,4011,900
$1,9012,400
20
Forty-nine of the Fortune 100 companies pay meeting
fees range from $500 to $2,500.*
* One company pays a $40,000 >xed annual meeting retainer to
all board and committee members in lieu of a per meeting fee.
16
NUMBER OF COMPANIES
fees to members of committees. The amounts of such
$2,401+
15
15
13
10
5
3
2
0
$900 OR
BELOW
34
Shearman & Sterling llp
$9011,100
$1,1011,300
$1,3011,500
$1,501+
DIRECTOR CASH COMPENSATION
C O M M I T T E E R E TA I N E R S
Ninety-three of the Fortune 100 companies pay committee retainers to members and/or
chairs of some or all of the board committees. Of these 93 companies, 16 pay committee
retainers to all committee members and 70 pay committee retainers to all committee chairs.
Other companies elect to pay retainers only with respect to certain committees.
2006
2005
2004
75
80
70
72
2003
69
NUMBER OF COMPANIES
70
59
59
60
50
40
40
28
30
20
27
25
21
16
13
15
17
21
18
14
17
14
9
9
5
10
5
3
4
3
3
0
0
11
8
0
5
5
2
5
0
ALL MEMBERS
OF EACH
COMMITTEE
ALL COMMITTEE
CHAIRS
ALL AUDIT
COMMITTEE
MEMBERS ONLY OR
AUDIT COMMITTEE
MEMBERS RECEIVED
HIGHER RETAINER
AUDIT COMMITTEE
CHAIR ONLY OR
AUDIT COMMITTEE
CHAIR RECEIVED
HIGHER RETAINER
ALL COMPENSATION
COMMITTEE
MEMBERS ONLY OR
COMPENSATION
COMMITTEE
MEMBERS RECEIVED
HIGHER RETAINER
COMPENSATION
COMMITTEE
CHAIR ONLY OR
COMPENSATION
COMMITTEE CHAIR
RECEIVED HIGHER
RETAINER
NOMINATING/
GOVERNANCE
COMMITTEE
MEMBERS ONLY
OR NOMINATING/
GOVERNANCE
COMMITTEE
MEMBERS RECEIVED
HIGHER RETAINER
NOMINATING/
GOVERNANCE
COMMITTEE
CHAIR ONLY OR
NOMINATING/
GOVERNANCE
COMMITTEE
CHAIR RECEIVED
HIGHER RETAINER
BOARD CHAIR
ONLY
OTHER*
* Includes >nancial, executive, public policy, litigation and industry-speci>c committees (or the chairs of such committees).
corporate governance practices
|35|
DIRECTOR CASH COMPENSATION
7
7
Of the Fortune 100 companies, 16 pay a retainer
6
to all committee members, compared with 13 of
the Fortune 100 companies surveyed in 2005 and
15 in 2004. The amounts of such retainers range
from $3,000 to $10,000, compared with $3,000
to $35,000 at the companies surveyed in 2005
NUMBER OF COMPANIES
C O M M I T T E E R E TA I N E R A M O U N T S
and $2,500 to $15,000 in 2004.
5
4
3
3
3
3
2
1
0
$3,000
$3,0015,000
$5,0018,000
$8,00135,000
30
30
C O M M I T T E E C H A I R R E TA I N E R A M O U N T S
to each committee chair, compared with 75 of the
Fortune 100 companies surveyed in 2005 and 72
in 2004. The amounts of such retainers range
from $2,000 to $25,000, compared with $2,000
to $50,000 at the companies surveyed in 2005
and $3,000 to $25,000 in 2004.
NUMBER OF COMPANIES
25
Of the Fortune 100 companies, 70 pay a retainer
20
17
14
15
10
5
4
5
0
$2,000 5,000
36
Shearman & Sterling llp
$5,0019,000
$9,001- $13,001- $17,00113,000
17,000
25,000
DIRECTOR CASH COMPENSATION
C O M P E N S AT I O N C O M M I T T E E R E T A I N E R S
NUMBER OF COMPANIES
5
Five of the Fortune 100 companies surveyed this
4
year and in 2005 pay a retainer (or a higher
retainer) to members of the compensation
3
committee, compared with three of the Fortune
2
100 companies surveyed in 2004. The amounts
1
1
1
of such retainers range from $4,000 to $25,000
1
1
1
compared with $5,000 to $25,000 at the
companies surveyed in each of 2005 and 2004.
0
$4,000
12
$5,000
$10,000 $15,000 $25,000
C O M P E N S AT I O N C O M M I T T E E
C H A I R R E TA I N E R S
11
NUMBER OF COMPANIES
10
Of the Fortune 100 companies, 25 pay a retainer
(or a higher retainer) to the chair of the
8
compensation committee, compared with 22 of
6
6
the Fortune 100 companies surveyed in 2005
4
and 18 in 2004. The amounts of such retainers
4
2
2
2
range from $5,000 to $25,000, which is the
same as in 2005 and 2004.
0
$5,000
$5,001- $10,001- $15,001- $20,00110,000 15,000
20,000 25,000
corporate governance practices
|37|
DIRECTOR CASH COMPENSATION
A U D I T C O M M I T T E E R E TA I N E R S
20
(or a higher retainer) to all members of the
audit committee, compared with 21 of the
Fortune 100 companies surveyed in 2005 and
14 in 2004. The amounts of such retainers
range from $2,000 to $25,000, compared with
NUMBER OF COMPANIES
Of the Fortune 100 companies, 28 pay a retainer
15
11
10
9
6
5
$4,000 to $50,000 in 2005 and $5,000 to
1
$25,000 in 2004.
1
0
$2,000 5,000
$5,001- $10,001- $15,001- $20,00110,000
15,000
20,000
25,000
A U D I T C O M M I T T E E C H A I R R E TA I N E R S
Of the Fortune 100 companies, 59 pay a
retainer (or a higher retainer) to the chair of
the audit committee, compared with 60 of the
Fortune 100 companies surveyed in 2005 and
20
18
40 in 2004. The amounts of such retainers
$5,000 to $75,000 in 2005 and $5,000 to
$75,000 in 2004.
NUMBER OF COMPANIES
range from $5,000 to $35,000, compared with
16
15
10
13
9
5
2
1
0
$5,000 10,000
38
Shearman & Sterling llp
$10,001- $15,001- $20,001- $25,001- $30,00120,000
30,000
15,000
35,000
25,000
DIRECTOR CASH COMPENSATION
N O M I N AT I N G / G O V E R N A N C E
C O M M I T T E E R E TA I N E R S
NUMBER OF COMPANIES
4
Three of the Fortune 100 companies pay a
3
retainer (or a higher retainer) to members of
the nominating/governance committee, which
2
is the same as in 2005. The amounts of such
1
1
1
retainers range from $4,000 to $10,000,
1
compared with $5,000 to $10,000 in 2005.
0
$4,000
NUMBER OF COMPANIES
10
$5,000 $10,000
N O M I N AT I N G / G O V E R N A N C E
C O M M I T T E E C H A I R R E TA I N E R S
9
Fourteen of the Fortune 100 companies pay a
8
retainer (or a higher retainer) to the chair of
the nominating/governance committee, compared
6
with 10 of the Fortune 100 companies surveyed
4
in 2005. The amounts of such retainers range
2
2
2
from $5,000 to $20,000, which is the same as
1
in 2005.
0
$5,000
$5,001- $10,001- $15,00110,000 15,000 20,000
corporate governance practices
|39|
DIRECTOR CASH AND OTHER COMPENSATION
L E A D D I R E C T O R R E TA I N E R
10
Twenty of the Fortune 100 companies pay a
8
NUMBER OF COMPANIES
8
retainer to the lead or presiding director.
The amounts of such retainers range from
$3,000 to $75,000*
* One company pays an additional retainer to its lead director
in the form of an additional equity grant.
7
6
4
3
2
2
0
$3,000- $5,001- $15,001- $30,0015,000 15,000 30,000 75,000
O T H E R F O R M S O F D I R E C T O R C O M P E N S AT I O N
60
60
N UM BE R OF C OMPA NIE S
50
2006
58
2005
2004
2003
47
40
40
35*
29
30
26
25
24
25
25
20
20
18
17
20
18
13
10
10
12
13
12
7
10
3
0
3
0
6
0
0
0
0
0
REIMBURSEMENT
FOR TRAVEL/
BUSINESS
EXPENSES
40
Shearman & Sterling llp
LIFE/TRAVEL/
ACCIDENT
INSURANCE
PERQUISITES
(INCLUDING
AIRCRAFT USAGE,
PRODUCTS AND
SERVICES AND
MEDICAL AND DENTAL
INSURANCE AT
REDUCED COST)
PARTICIPATION
IN MATCHING
CONTRIBUTION
PROGRAMS
PERQUISITES
AND EXPENSE
REIMBURSEMENT
AVAILABLE TO
SPOUSE AND/OR
OTHER FAMILY
MEMBERS
PARTICIPATION
IN $1 MILLION
CHARITABLE
CONTRIBUTION
PROGRAMS
FEES FOR SPECIAL
OR EXTRAORDINARY
SERVICES
REIMBURSEMENT
OF TAXES INCURRED
WITH RESPECT TO
SOME OR ALL OF
THE BENEFITS
* Eight of the Fortune 100 companies permit one or more directors to use company-owned or leased aircraft.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
NEO EMPLOYMENT AGREEMENTS
BOTH CEO AND AT
LEAST ONE NEO
[34]
[13] AT LEAST ONE NEO
ONLY
Of the Fortune 100 companies, 57 have entered into employment
agreements with one or more of their named executive o;cers (NEOs),
compared with 56 of the Fortune 100 companies surveyed in 2005.
NONE
[43]
[10] CEO ONLY
NEO CHANGE IN CONTROL ARRANGEMENTS
[5]
AT LEAST ONE NEO ONLY
HAS A STAND-ALONE
ARRANGEMENT
Of the Fortune 100 companies, 63 provide change in control protection
to one or more of their named executive o;cers, compared with 59 of
the Fortune 100 companies surveyed in 2005. Of these 63 companies,
38 provide change in control bene>ts in stand-alone arrangements, 25
NONE [62]
[33] BOTH CEO AND AT
LEAST ONE NEO HAVE
STAND-ALONE
ARRANGEMENTS
provide the bene>ts as part of an employment or severance arrangement,
and three provide the bene>ts both in stand-alone arrangements and as
part of employment or severance arrangements.
corporate governance practices
|41|
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
NEO SEVERANCE ARRANGEMENTS
Of the Fortune 100 companies, 28 provide severance protection to
their named executive o;cers, compared with 26 of the Fortune 100
companies surveyed in 2005. Of these 28 companies, >ve include
change in control provisions in at least one agreement.
NONE [72]
[10] AT LEAST ONE NEO ONLY
[18] BOTH CEO AND AT LEAST
ONE NEO
42
Shearman & Sterling llp
STOCK OWNERSHIP GUIDELINES
DIRECTOR AND EXECUTIVE STOCK OWNERSHIP GUIDELINES
Of the Fortune 100 companies, 11 have reported only director stock ownership guidelines,
and six have reported only executive stock ownership guidelines. Seventy companies have
reported stock ownership guidelines for both directors and executive o;cers. Thirteen of
the Fortune 100 companies have not publicly speci>ed whether they maintain director or
executive stock ownership guidelines.
2006
2005
2004
2003
70
70
66
NUMBER OF COMPANIES
60
49
50
40
34
30
20
11
15
9
17
11
10
6
20
9
0
DIRECTOR STOCK
OWNERSHIP
GUIDELINES ONLY
EXECUTIVE
STOCK OWNERSHIP
GUIDELINES ONLY
BOTH DIRECTOR
AND EXECUTIVE
STOCK OWNERSHIP
GUIDELINES
corporate governance practices
|43|
STOCK OWNERSHIP GUIDELINES
TERMS OF DIRECTOR STOCK OWNERSHIP GUIDELINES
MULTIPLE OF ANNUAL RETAINER
SPECIFIC NUMBER OF SHARES
NUMBER OF COMPANIES
HOLD SHARES UNTIL SERVICE TERMINATED OR FOR
A SPECIFIED PERIOD THEREAFTER
70
RETAIN PERCENTAGE OF SHARES ACQUIRED THROUGH OPTION
EXERCISES AND EQUITY AWARDS (AFTER TAXES AND COSTS)
60
SPECIFIC DOLLAR VALUE
50
30
20
0
Shearman & Sterling llp
OWN A “SUBSTANTIAL”, “APPROPRIATE” OR “MEANINGFUL”
AMOUNT OF STOCK OR “SIGNIFICANT EQUITY STAKE”
40
10
44
OWNERSHIP ENCOURAGED, NOT MANDATORY
41
23
OTHER
13
10
UNSPECIFIED GUIDELINES
6
3
3
3
1
1
ADDITIONAL EQUITY GRANT IF GUIDELINES
ATTAINED OR EXCEEDED
STOCK OWNERSHIP GUIDELINES
TERMS OF EXECUTIVE STOCK OWNERSHIP GUIDELINES
MULTIPLE OF BASE SALARY
RETAIN PERCENTAGE OF SHARES ACQUIRED IN CONNECTION WITH
OPTION EXERCISES AND EQUITY AWARDS (AFTER TAXES AND COSTS)
80
70
63
NUMBER OF COMPANIES
SPECIFIC NUMBER OF SHARES
60
UNSPECIFIED GUIDELINES
50
BONUS PAID IN COMMON STOCK UNTIL GUIDELINES ARE SATISFIED
40
PERCENTAGE OF SHAREHOLDINGS ON A SPECIFIED DATE
PLUS PERCENTAGE OF SHARES AWARDED THEREAFTER
30
18
OWNERSHIP ENCOURAGED, NOT MANDATORY
20
9
10
ADDITIONAL EQUITY GRANT IF GUIDELINES ATTAINED OR EXCEEDED
1
1
1
1
1
0
corporate governance practices
|45|
SURVEY METHODOLOGY
For the purposes of this survey, the
corporate governance practices of the
100 largest U.S. companies (as ranked
in FORTUNE magazine’s FORTUNE 500®
list, by revenue, for the most recently
ended fiscal year) that have equity
securities listed on the NYSE or
Nasdaq were reviewed.* Specifically,
the most recently available annual
proxy statements and corporate
website information available as of
June 15, 2006 for the following
companies listed in descending order
according to revenue were reviewed:
* Consequently, the practices of non-public companies State
Farm Mutual Automobile Insurance Company, New York
Life Insurance Company, Teachers Insurance and Annuity
Association-College Retirement Equities Fund, Massachusetts
Mutual Life Insurance Company, Nationwide Mutual
Insurance Company, Liberty Mutual Insurance and Publix
Supermarkets were not examined.
The practices of Albertson’s, Inc., Delphi Corporation and
Plains All American Pipeline, L.P. were also not examined.
Albertson’s, Inc. was delisted in connection with its acquisition
prior to June 15, 2006 and did not >le its regular annual proxy
statement. Delphi Corporation is in bankruptcy and did not
>le its proxy statement as of June 15, 2006. Plains All
American Pipeline, L.P. is a limited partnership with no board
of directors and no requirement to hold annual meetings.
46
Shearman & Sterling llp
Exxon Mobil Corporation
Wal-Mart Stores, Inc.
General Motors Corporation
Chevron Corporation
Ford Motor Company
ConocoPhillips
General Electric Company
Citigroup Inc.
American International Group, Inc.
International Business
Machines Corporation
Hewlett-Packard Company
Bank of America Corporation
Berkshire Hathaway Inc.
The Home Depot, Inc.
Valero Energy Corporation
McKesson Corporation
JPMorgan Chase & Co.
Verizon Communications Inc.
Cardinal Health, Inc.
Altria Group, Inc.
The Kroger Co.
Marathon Oil Corporation
The Procter & Gamble Company
Dell Inc.
The Boeing Company
AmerisourceBergen Corporation
Costco Wholesale Corporation
Target Corporation
Morgan Stanley
P>zer Inc.
Johnson & Johnson
Sears Holding Corporation
Merrill Lynch & Co., Inc.
MetLife, Inc.
The Dow Chemical Company
UnitedHealth Group Incorporated
WellPoint, Inc.
AT&T Corp.
Time Warner Inc.
The Goldman Sachs Group, Inc.
Lowe’s Companies, Inc.
United Technologies Corporation
United Parcel Service, Inc.
Walgreen Co.
Wells Fargo & Company
Microsoft Corporation
Intel Corporation
Safeway Inc.
Medco Health Solutions, Inc.
Lockheed Martin Corporation
CVS Corporation
Motorola, Inc.
Caterpillar Inc.
Archer-Daniels-Midland Company
Wachovia Corporation
The Allstate Corporation
Sprint Nextel Corporation
Caremark Rx, Inc.
PepsiCo, Inc.
Lehman Brothers Holdings Inc.
The Walt Disney Company
Prudential Financial, Inc.
Sunoco, Inc.
Northrop Grumman Corporation
Sysco Corporation
American Express Company
FedEx Corporation
Honeywell International Inc.
Ingram Micro Inc.
E.I. du Pont de Nemours
and Company
Johnson Controls, Inc.
Best Buy Co., Inc.
The Hartford Financial Services
Group, Inc.
Alcoa Inc.
Tyson Foods, Inc.
International Paper Company
Cisco Systems, Inc.
HCA Inc.
The St. Paul Travelers Companies, Inc.
News Corporation
Federated Department Stores, Inc.
Hess Corporation
The Coca-Cola Company
Weyerhaeuser Company
Aetna Inc.
Abbott Laboratories
Comcast Holding Corporation
Merck & Co., Inc.
Deere & Company
Raytheon Company
Washington Mutual, Inc.
General Dynamics Corporation
3M Company
Halliburton Company
AMR Corporation
BellSouth Corporation
Tech Data Corporation
Electronic Data Systems Corporation
McDonald’s Corporation
Bristol-Myers Squibb Company
Copyright © 2006 Shearman & Sterling LLP. As used herein, “Shearman & Sterling” refers to Shearman & Sterling LLP,
a limited liability partnership organized under the laws of the State of Delaware.
corporate governance practices
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