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Compensation and Governance Practices for Portfolio Companies

Mellon's recent Board of Directors Survey provides an analysis of corporate governance and compensation practices for US private equity firm's portfolio companies. The three main trends they discovered are that implementation of governance best practices is accelerating, compensation levels are accelerating, and role-based director pay is emerging.

Retainers continue to be the most prevalent form of cash compensation for outside directors (97%). Retainers continue to be given for general board service, as well as to many committee chairs. The median general board service retainer is $40,000, and cash was the primary form of pay delivery (69%).

When the retainer is required to be paid in both cash and stock, 50 percent each is the common mix. Companies typically pay retainers annually (50%), but quarterly payment is also quite frequent (43%). Companies are moving to role-based pay for directors. Companies are beginning to pay a different retainer for Lead Directors (18%), with the median Lead Director retainer at $60,000. Outside Board Chairs receive a higher retainer the majority of the time.

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Mellon Financial Corporation is one of the world's leading providers of financial services for corporations, institutions and affluent individuals around the globe, with approximately $3.5 trillion in assets under management, administration or custody. Their operations include Mellon Ventures, the $1.4 billion private equity investment partnership affiliated with Mellon Financial Corporation. (c) Mellon Financial Corporation 2004 - used with permission.