50
2006 Trends in the Corporate Governance Practices of the Fortune 100
20
06
Trends in the
Corporate Governance Practicesof the
Fortune 100
I V S h e a r m a n & S t e r l i n g l l p
20
06
Trends in the
Corporate Governance Practicesof 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 S h e a r m a n & S t e r l i n g l l p
T A B L E O F C O N T E N T S
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
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
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
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.
4 S h e a r m a n & S t e r l i n g l l p
20
06
Trends in theCorporate 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 develop-
ments that are more accurately attributed to shareholder pressure rather than compliance with new rules or regulations.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 5 |
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
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.
6 S h e a r m a n & S t e r l i n g l l p
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.
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
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.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 7 |
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.
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[33] “SUBSTANTIAL” OR “SIGNIFICANT” MAJORITY OFINDEPENDENT DIRECTORS
[43] MAJORITY OF INDEPENDENT DIRECTORS
OTHER SUPERMAJORITY [12]REQUIREMENTS
(DETAILED BELOW)
2/3 INDEPENDENT [11]DIRECTORS
NO SUCH REQUIREMENT* [1]
I NDEPENDENCE POL IC I ES
Both the NYSE and Nasdaq listing standards
require that a majority of a listed company’s
directors be independent. Of the Fortune 100
companies, 56 have adopted and disclosed
stricter standards regarding the minimum
number of independent directors than required
by the relevant listing standards, compared with
54 of the Fortune 100 companies surveyed in
2005 and 46 in 2004.
8 S h e a r m a n & S t e r l i n g l l p
OTHER SUPERMAJOR I TY REQU IREMENTS
* 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.
0
1
2
3
1 1 1 1
2
1
2
3
“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
75% INDEPENDENT DIRECTORS
70% INDEPENDENT DIRECTORS
60% INDEPENDENT DIRECTORS (BUT GOAL OF 75%)
“PREPONDERANCE” OF INDEPENDENT DIRECTORS
“CLEAR MAJORITY” OF INDEPENDENT DIRECTORS
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c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 9 |
D I R E C T O R I N D E P E N D E N C E
INDEPENDENT DIRECTORS [82]CONSTITUTE 75% OR MORE
OF THE BOARD
[18] INDEPENDENT DIRECTORSCONSTITUTE LESS THAN75% OF THE BOARD
ACTUAL NUMBER OF INDEPENDENT D IRECTORS
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
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.
CATEGOR ICAL STANDARDS
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
10
20
30
40
50
60
7068
28 27
21 21
10 912
DONATIONS TO A NON-PROFIT ORGANIZATIONWITH WHICH DIRECTOR IS AFFILIATED
DIRECTOR OWNS AN INTEREST IN A PARTY THATHAS A RELATIONSHIP WITH THE LISTED COMPANY
DIRECTOR IS AFFILIATED WITH A COMPANYINDEBTED TO THE LISTED COMPANY OR TO WHICH THE LISTED COMPANY IS INDEBTED
PROFESSIONAL OR BANKING RELATIONSHIPBETWEEN THE DIRECTOR OR FAMILYMEMBER AND THE LISTED COMPANY
WHETHER RELATIONSHIPS BETWEEN DIRECTORS AND THE LISTED COMPANY ARE ON TERMS NO MORE FAVORABLE THAN AVAILABLE TONON-DIRECTORS
CONSULTING OR PROFESSIONAL SERVICESCONTRACT BETWEEN THE DIRECTOR ORFAMILY MEMBER AND THE LISTED COMPANY
THRESHOLD OF 1% OF GROSS REVENUES FOR COMMERCIAL RELATIONSHIPS (COMPAREDTO NYSE STANDARD OF THE GREATER OF$1M OR 2%)
5-YEAR “LOOK-BACK” PERIOD FORRELATIONSHIPS (COMPARED TONYSE 3-YEAR “LOOK-BACK” PERIOD)
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1 0 S h e a r m a n & S t e r l i n g l l p
CATEGOR ICAL STANDARDS – CONTR IBUT IONS TO NON -PROF I T ORGAN IZAT IONS
Of the Fortune 100 companies, 68 have adopted a categorical standard
relating to a director’s a;liation with a non-pro>t organization that
receives contributions from the listed company, compared with 64 of the
Fortune 100 companies surveyed in 2005 and 49 in 2004. The look-
back 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
nature of the director’s a;liation with the non-pro>t organization are
the three principal variations among the Fortune 100 companies that
have adopted such a categorical standard.0
5
10
15
20
25
30
35
6 5
2
35
10 9
PAST THREE YEARS
PREVIOUS YEAR
OTHER
DOES NOT SPECIFY
CURRENTLY RECEIVES
PAST FIVE YEARS
CURRENT OR PREVIOUS YEAR
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0
10
20
30
40
50
1% 2% 5% 10%
8
46
63
1 1 2
$50,000 SIGNIFICANT, MATERIAL OR SUBSTANTIAL PORTION OF FUNDING
$200,000
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$250,000
DIRECTOR IS AN OFFICER OF NON-PROFIT ORGANIZATION
DIRECTOR IS A DIRECTOR OF NON-PROFIT ORGANIZATION
DIRECTOR IS A TRUSTEE OF NON-PROFIT ORGANIZATION
DIRECTOR IS AN EMPLOYEE OF NON-PROFIT ORGANIZATION
DIRECTOR IS “AFFILIATED WITH” NON-PROFIT ORGANIZATION
DIRECTOR IS A FIDUCIARY OF NON-PROFIT ORGANIZATION
0
10
20
30
40
50
60
60
37
3
33
10NU
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LOOK -BACK PER IOD
AMOUNT OF CONTR IBUT IONS *D IRECTOR ’S A F F I L I AT ION W ITH NON -PROF I T ORGAN IZAT ION
* 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.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 1 1 |
D I R E C T O R I N D E P E N D E N C E
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2
4
6
8
10
12
11
8
6
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DOES NOT SPECIFY
PREVIOUS THREE YEARS
PREVIOUS YEAR
PREVIOUS FIVE YEARS
CURRENT OR PREVIOUS YEAR
0
2
4
6
8
10
1% 2% 3% 5%
1
6
10
8
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AMOUNT OF DEBT *
LOOK -BACK PER IOD
* 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.
CATEGOR ICAL STANDARDS – INDEBTEDNESS
Of the Fortune 100 companies, 27 have adopted a categorical standard
relating to a director’s a;liation with a company that is indebted to the
listed company or to which the listed company is indebted, compared
with 29 of the Fortune 100 companies surveyed in 2005 and 21 in
2004. The look-back period for such indebtedness, the amount of the
debt (generally expressed as a percentage of the debtor company’s
consolidated assets) and the nature of the director’s a;liation with the
other company are the three principal variations among the Fortune 100
companies that have adopted such a categorical standard.
0
5
10
15
20
25
32
24
98
DIRECTOR IS AN OFFICER OF OTHER COMPANY
DIRECTOR IS AN EMPLOYEE OF OTHER COMPANY
DIRECTOR HOLDS EQUITY IN OTHER COMPANY*
DIRECTOR IS A PARTNER OF OTHER COMPANY
DIRECTOR IS A DIRECTOR OF OTHER COMPANY
DIRECTOR IS “ASSOCIATED” WITH OTHER
COMPANY
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D IRECTOR ’S A F F I L I AT ION W ITH COMPANY THAT I S INDEBTED TOL ISTED COMPANY OR TO WH ICH L I STED COMPANY I S INDEBTED
* For all but one of these companies, the equity holding is
expressed as a percentage (ranging from 2% to 10%).
1 2 S h e a r m a n & S t e r l i n g l l p
SERV ICE ON OTHER PUBL IC COMPANY BOARDS
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
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,
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 BEFOREJOINING 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
APPROVAL OF BOARD REQUIRED FOR CEO OR EMPLOYEE DIRECTORS BEFORE JOINING ANOTHER BOARD
APPROVAL OF BOARD REQUIRED FOR ALL DIRECTORS BEFORE JOINING ANOTHER BOARD
CASE-BY-CASE REVIEW OF NUMERICAL LIMITS
CURRENT SERVICE IN EXCESS OF LIMITS MUST BE REDUCED WITHIN A CERTAIN PERIOD
0
10
20
30
40
50
52
49 48
17
128
57N
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OF
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[13] TOPIC NOT ADDRESSEDADDRESS SERVICE BY [87]DIRECTORS ON OTHER
PUBLIC COMPANY BOARDS
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 1 3 |
D I R E C T O R Q U A L I F I C A T I O N S
0
1
2
3
4
5
6
7
8
3
NUMBER OF BOARDS
1
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7
8
4 5 6
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BOARDS FOREMPLOYEE DIRECTORS
BOARDS FORNON-EMPLOYEE DIRECTORS
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1
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3
4
5
6
7
8
2
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L IM I TS ON THE TOTAL NUMBER OF BOARDS APPL ICABLE TO A L L D I RECTORS
L IM ITS ON BOARD SERV ICE BASED UPONWHETHER D IRECTOR I S A COMPANY EMPLOYEE
0
2
4
6
8
10
12 11
2 2
5
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1
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1 1
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4 BOARDS IF EMPLOYED AS CEO OF ANY COMPANY
5 BOARDSIF NOT EMPLOYEDAS CEO OF ANY COMPANY
2 BOARDS IF EMPLOYED AS THE CEO OF THE COMPANY IN QUESTION
4 BOARDS IF EMPLOYED AS THE CEO OF THE COMPANY IN QUESTION
3 BOARDS IF EMPLOYED AS CEO OF ANY COMPANY
4 BOARDS IF NOT EMPLOYED AS CEO OF ANY COMPANY
6 BOARDS IF NOT EMPLOYED AS CEO OF ANY COMPANY
3 BOARDS IF EMPLOYED AS THE CEO OF THE COMPANY IN QUESTION
4 BOARDS IF NOT CEO OF THE COMPANY IN QUESTION
3
2 2 2
1 1 1 1 1 1
5 BOARDS IF NOT CEO OF THE COMPANY IN QUESTION
3 BOARDS IF EMPLOYED FULL-TIME
5 BOARDS IF EMPLOYED FULL-TIME
6 BOARDS IF NOT CEO OF THE COMPANY IN QUESTION
4 BOARDS IF EMPLOYED FULL-TIME
5 BOARDS IF RETIRED FROM FULL-TIME EMPLOYMENT
6 BOARDS IF RETIRED FROM FULL-TIME EMPLOYMENT
7 BOARDS IF RETIRED FROM FULL-TIME EMPLOYMENT
3 BOARDS IF CHAIRMAN OF THE BOARD OF THE COMPANY IN QUESTION
2 BOARDS IF DIRECTOR IS EMPLOYEE OTHER THAN THE CEO
L IM I TS ON BOARD SERV ICE BASED UPON D IRECTOR ’S PR INC IPAL OCCUPAT ION
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1 4 S h e a r m a n & S t e r l i n g l l p
RET IREMENT AGE
Although not required by either the NYSE or
Nasdaq listing standards, 86 of the Fortune 100
companies have disclosed a mandatory retirement
age for their non-employee directors, compared
with 89 of the Fortune 100 companies surveyed in
2005 and 86 in 2004.* Of those 86 Fortune 100
companies, 30 permit exceptions to the retirement
age policy to be made by the board of directors
or a committee thereof.
TERM L IM I TS
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
in 2004, have adopted mandatory term limits
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.
[53] AGE 72
[1] AGE 71
[20] AGE 70TOPIC NOT ADDRESSED [4]
TOPIC ADDRESSED BUT [10]NO MANDATORY
RETIREMENT AGE
AGE 73 OR GREATER [9]
[3] AGE 68
EXPLAIN RATIONALE [68]FOR NOT ADOPTING
TERM LIMITSFOR DIRECTORS
TOPIC OF TERM LIMITS [29] NOT ADDRESSED
[1] 15-YEAR TERM LIMIT
[1] 18-YEAR TERM LIMIT
[1] DIRECTORS MUST SUBMIT RESIGNATION AFTER 12 YEARS OF SERVICE; CONTINUED SERVICE TO BE DETERMINED BY THE BOARD
* 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.
** The three companies are The Procter & Gamble Company,
Target Corporation and The Walt Disney Company.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 1 5 |
D I R E C T O R Q U A L I F I C A T I O N S
[39] IDENTITY OF ONLY ONE AUDIT COMMITTEE FINANCIAL EXPERT DISCLOSED
AUDIT COMMITTEE HAS A [2]MAJORITY OF FINANCIAL EXPERTS BUT ONLY ONE
EXPERT IS IDENTIFIED
AUDIT COMMITTEE HAS [2]MORE THAN ONE
FINANCIAL EXPERT BUT ONLY ONE EXPERT
IS IDENTIFIED
ALL AUDIT COMMITTEE [17]MEMBERS DISCLOSED AS
AUDIT COMMITTEE FINANCIAL EXPERTS
[40] IDENTITY OF TWO OR MORE AUDIT COMMITTEE FINANCIAL EXPERTS DISCLOSED
AUD I T COMMITTEE F INANC IAL EXPERTS
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
the Fortune 100 companies voluntarily disclosed the identity of more
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 [1]COMMITTEES REQUIRES BOARD DETERMINATION
THAT ABILITY TO SERVE IS NOT IMPAIRED
NO MORE THAN FOUR [1]AUDIT COMMITTEES
MORE THAN THREE AUDIT [38]COMMITTEES REQUIRES
BOARD APPROVAL OR DETERMINATION THAT
DIRECTOR’S ABILITY TO SERVE IS NOT IMPAIRED
NO MORE THAN TWO [1]AUDIT COMMITTEES
[14] NO MORE THAN THREE AUDIT COMMITTEES
[3] CASE-BY-CASE DETERMINATION OR CONSIDERATION
[5] MEMBERS SHOULD NOT SERVE ON MORE THAN THREE AUDIT COMMITTEES
[37] NO LIMIT ON NUMBER OF AUDIT COMMITTEES OR NO RESTRICTIONS DISCLOSED
SERV ICE ON MULT IP LE AUD I T COMMITTEES
The NYSE listing standards require that, if an audit committee member
simultaneously serves on the audit committee of more than three
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
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.
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CEO SERVES AS CHAIRMAN [76]OF THE BOARD
[24] CEO DOES NOT SERVE AS CHAIRMAN OF THE BOARD
[19] COMPANY BELIEVES THAT OFFICES SHOULD NOT BE SEPARATED
[32] TOPIC NOT ADDRESSED
COMPANY POLICY CURRENTLY [6]REQUIRES THAT
SEPARATE INDIVIDUALSSERVE AS CEO AND
CHAIRMAN OF THE BOARD
ADDRESS TOPIC BUT COMPANY [43]HAS NO FORMAL POLICY OR
DIRECTORS ARE FREE TO DECIDE WHAT IS IN
COMPANY’S BEST INTEREST
SEPARAT ION OF THE O F F I CES O F CEO AND CHA IRMAN 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,
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.
POL IC I ES ON SEPARAT ION OF THE O F F I CES O F CEO AND CHA IR
Sixty-eight of the Fortune 100 companies address
the topic of whether the two o;ces should be
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.
* 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.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 1 7 |
B O A R D L E A D E R S H I P
SELECT ION OF PRES ID ING D IRECTORSFOR EXECUT IVE SESS IONS
The NYSE listing standards require that the
name, or the method of selection, of the
director presiding over executive sessions of
non-management directors be disclosed in a
company’s annual proxy statement. Since the
implementation of this requirement, the
Fortune 100 companies have adopted a wide
variety of methods for selecting their presiding
directors, and no standard approach has developed.
[1] NOT REQUIRED TO BE DISCLOSED (NASDAQ COMPANY)
ROTATE (DETAILED BELOW) [18]
COMPENSATION COMMITTEE CHAIR [1]
NON-EXECUTIVE CHAIRMAN [6]
EXECUTIVE COMMITTEE CHAIR [2]
EXECUTIVE COMMITTEE [1]VICE-CHAIRMAN
LEAD OR PRESIDING DIRECTOR [15]CHOSEN BY BOARD
MOST SENIOR INDEPENDENT [1]DIRECTOR [21] CHOSEN BY INDEPENDENT OR
NON-MANAGEMENT DIRECTORS
[1] VICE-CHAIRMAN
[1] SECRETARY*
[23] NOMINATING/GOVERNANCECOMMITTEE CHAIR
[6] CHAIR OF COMMITTEE WITHJURISDICTION OVER THESUBJECT MATTER OF MEETING
[2] AUDIT COMMITTEE CHAIR
AUDIT AND COMPENSATION [1]COMMITTEE CHAIRS ARE
CO-LEAD DIRECTORS
ROTAT ION OF PRES ID ING D IRECTORS
ROTATE AMONG CHAIRS OF ALL COMMITTEES COMPRISEDENTIRELY 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
ROTATE ACCORDING TO YEARS OF SERVICE
ROTATE AMONG AUDIT, NOMINATING/GOVERNANCE,COMPENSATION AND EXECUTIVE COMMITTEE CHAIRS
ROTATE AMONG INDEPENDENT DIRECTORS
CHOSEN BY DIRECTORS AT EXECUTIVE SESSION
HYBRID (CHAIR OF COMMITTEE WITH JURISDICTION OVERSUBJECT MATTER AND OTHERWISE ROTATE ALPHABETICALLY)
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* A non-management director serves as Secretary.
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NO ADDITIONAL DUTIES [52]SPECIFIED FOR CHAIR OF
EXECUTIVE SESSIONS
[48] LEAD INDEPENDENT/PRESIDINGDIRECTOR 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
COMMUNICATES DIRECTOR FEEDBACK TO THE CEO
ADVISES ON THE SELECTION OF COMMITTEE CHAIRS
RECOMMENDS ADVISORS/CONSULTANTS TO THE BOARD
ASSISTS IN ENSURING COMPLIANCE WITHGOVERNANCE GUIDELINES
ASSISTS IN RECRUITMENT OF NEW DIRECTORS
REVIEWS SHAREHOLDER COMMUNICATIONS AND/OR EMPLOYEE COMPLAINTS
SERVES AS CHAIR IN EVENT OF UNFORESEEN VACANCY
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40 37
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SDUT I ES O F PRES ID ING / L EAD INDEPENDENT D IRECTORS
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
companies surveyed in 2005. The principal responsibilities given to
presiding directors at these companies are detailed below.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 1 9 |
B O A R D L E A D E R S H I P
[13] AT LEAST 4 MEETINGS ANNUALLY
[4] 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
AT LEAST 1 MEETING ANNUALLY [3]
AT LEAST 2 MEETINGS ANNUALLY [19]
AT LEAST 3 MEETINGS ANNUALLY [11]
FREQUENCY OF EXECUT IVE SESS IONS
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.
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12 MEETINGS [10]
11 MEETINGS [5]
10 MEETINGS [9]
9 MEETINGS [14]
13 OR MORE MEETINGS [11][9] 5 OR FEWER MEETINGS
[17] 8 MEETINGS
[12] 6 MEETINGS
[13] 7 MEETINGS
TOPIC NOT ADDRESSED [49] OR NO MINIMUM
NUMBER REQUIRED
[9] 4 MEETINGS
[1] 10 MEETINGS
[10] 5 MEETINGS
[15] 6 MEETINGS
[12] 8 MEETINGS
[4] 7 MEETINGS
NUMBER OF BOARD MEET INGS IN 2005 *
Over the past few years, the number of board
meetings has steadily increased. During 2002,
51 of the Fortune 100 companies surveyed held
eight or more meetings; that number increased
to 54 Fortune 100 companies in 2003, 65 in
2004 and 66 in 2005.
MIN IMUM NUMBER OF BOARD MEET INGS
Of the Fortune 100 companies, 51 set a
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.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 2 1 |
B O A R D A N D C O M M I T T E E M E E T I N G S
12 MEETINGS [8]
11 MEETINGS [14]
10 MEETINGS [10]
13 OR MORE MEETINGS [14]
[14] 8 MEETINGS
[5] 7 MEETINGS
[3] 6 MEETINGS
[4] 5 MEETINGS
[24] 9 MEETINGS
[4] 4 MEETINGS
TOPIC NOT ADDRESSED [12]OR NO MINIMUM
NUMBER REQUIRED
6 MEETINGS [12] [66] 4 MEETINGS
7 OR MORE MEETINGS [3]
[2] 3 MEETINGSIN CONJUNCTION WITH [2]REGULARLY SCHEDULED
BOARD MEETINGS
5 MEETINGS [3]
NUMBER OF AUD I T COMMITTEEMEET INGS 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,
64 of the Fortune 100 companies held eight or
more meetings of the audit committee; that
number increased to 80 Fortune 100 companies
in 2004 and 84 in 2005.
MIN IMUM NUMBER OF AUD I TCOMMITTEE MEET INGS
Of the Fortune 100 companies, 88 require a
minimum number of audit committee meetings
each year, compared with 86 of the Fortune 100
companies surveyed in 2005 and 85 in 2004.
The minimum number of meetings ranges
from three to nine.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
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[28] 4 MEETINGS5 MEETINGS [22]
7 MEETINGS [3]
8-12 MEETINGS [11] [2] 1 MEETING
6 MEETINGS [14][15] 3 MEETINGS
[5] 2 MEETINGS
TOPIC NOT ADDRESSED [40]OR NO MINIMUM
NUMBER REQUIRED
[16] 4 MEETINGS
IN CONJUNCTION WITH [1] REGULARLY SCHEDULED
BOARD MEETINGS
[25] 2 MEETINGS
[3] 1 MEETING
[15] 3 MEETINGS
NUMBER OF NOMINAT ING /GOVERNANCECOMMITTEE MEET INGS IN 2005*
During 2003, 45 of the Fortune 100 companies
held >ve or more meetings of the nominating/
governance committee; that number increased
to 55 Fortune 100 companies in 2004 and
decreased to 50 in 2005.
MIN IMUM NUMBER OFNOMINAT ING /GOVERNANCE COMMITTEE MEET INGS
Of the Fortune 100 companies, 60 require a
minimum number of nominating/governance
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.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 2 3 |
B O A R D A N D C O M M I T T E E M E E T I N G S
[14] 6 MEETINGS
[21] 5 MEETINGS
[11] 4 MEETINGS
7 MEETINGS [16]
8 MEETINGS [13]
9 MEETINGS [5]
10 OR MORE MEETINGS [13]
[4] 3 MEETINGS
[1] 2 MEETINGS
[2] 1 MEETING
[12] 3 MEETINGS
[10] 2 MEETINGS
[3] 1 MEETINGNO MINIMUM [36]NUMBER REQUIRED
[34] 4 MEETINGS5 OR MORE MEETINGS [3]
IN CONJUNCTION WITH [2]REGULARLY SCHEDULED
BOARD MEETINGS
NUMBER OF COMPENSAT ION COMMITTEE MEET INGS IN 2005 *
During 2003, 74 of the Fortune 100 companies
held >ve or more meetings of the compensation
committee; that number increased to 81 Fortune
100 companies in 2004 and 82 in 2005.
MIN IMUM NUMBER OF COMPENSAT IONCOMMITTEE MEET INGS
Of the Fortune 100 companies, 62 require a
minimum number of compensation committee
meetings each year, compared with 60 of the
Fortune 100 companies surveyed in 2005 and
54 in 2004. The minimum number of meetings
ranges from one to eight.
* For purposes of these >ndings, for companies that do not
have a calendar >scal year, the most recent publicly available
information is re?ected.
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COMPANY DOES [83] NOT HAVE A
“POISON PILL”
[17] COMPANY HAS A “POISON PILL”
BOARD IS NOT [63] CLASSIFIED
[37] BOARD IS
CLASSIFIED*
* Six of these Fortune 100 companies are in
the process of declassifying their boards.
PO ISON P I L L
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.
CLASS I F I ED 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
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.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 2 5 |
M A J O R I T Y V O T I N G
DIRECTORS ELECTED [6]BY MAJORITY OF
VOTES CAST
[58] DIRECTORS ELECTED BY PLURALITY OF VOTES CAST
DIRECTORS ELECTED [5]BY MAJORITY OF VOTES CAST BUT INCUMBENT
DIRECTORS WHO FAIL TO BE RE-ELECTED MUST
TENDER RESIGNATION
DIRECTORS ELECTED [31]BY PLURALITY OF VOTES
CAST BUT DIRECTOR MUST TENDER RESIGNATION IF MORE VOTES WITHHELD THAN CAST FOR HIS OR
HER ELECTION
VOT ING STANDARDS IN D IRECTOR E LECT IONS
Although directors continue to be elected by a plurality of the votes cast
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
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
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.
LOCAT ION OF RES IGNAT ION REQU IREMENTS
0
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GOVERNANCE GUIDELINES ONLY
GOVERNANCE GUIDELINES AND BYLAWS
BYLAWS ONLY
PROXY STATEMENT
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DETERMINED BY BOARD FOLLOWING NOMINATING/ GOVERNANCE COMMITTEE RECOMMENDATION
DETERMINED BY INDEPENDENT DIRECTORS FOLLOWING NOMINATING/GOVERNANCE COMMITTEE RECOMMENDATION
DETERMINED BY INDEPENDENT DIRECTORS
DETERMINED BY BOARD OF DIRECTORS
1 1
DETERMINED BY INDEPENDENT DIRECTORS FOLLOWING BOARD CONSIDERATION
NO PROCEDURE SPECIFIED
CONS IDERAT ION OF RES IGNAT ION
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.
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12
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11 11
19
24*
55
13
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8
15 15 15
8 810
9
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3 3
32**
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INDEPENDENT BOARD CHAIRMAN (NOT CURRENT OR PAST CEO)
TWO NOMINEES FOR EACH DIRECTOR POSITION
CUMULATIVE VOTING FOR DIRECTORS
REDEMPTION OF, OR SHAREHOLDER VOTE ON, POISON PILL
REMOVAL OF SUPERMAJORITY REQUIREMENT
TERM LIMIT FOR OUTSIDE DIRECTORS
INCREASE BOARD INDEPENDENCE
ANNUAL ELECTION OF DIRECTORS
DIRECTOR ELECTIONS BY MAJORITY VOTE
2005 2004 20032006
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:
INDEPENDENT BOARD CHAIRMAN: Requests that the board adopt a policy requiring its
chairman to be an independent director and not the
current or former CEO.
TERM LIMIT FOR OUTSIDE DIRECTORS: Requests that the board establish a policy limiting
directors’ tenure, in most instances, to six years.
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.
CUMULATIVE VOTING FOR DIRECTORS: 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.
ANNUAL ELECTION OF DIRECTORS: 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.
DIRECTOR ELECTIONS BY MAJORITY VOTE: 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.
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.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 2 7 |
01
3*
1
LIMIT OUTSIDE DIRECTORSHIPS
2 2 21 1 1
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ONE VOTE PER SHARE
DIRECTORS’ LIABILITY FOR GROSSLY NEGLIGENT CONDUCT
ADOPT GLOBALCORPORATE STANDARDS
ESTABLISHA MAJORITY VOTE SHAREHOLDER COMMITTEE
INDEPENDENT COMMITTEE TO ADDRESS CONFLICTS OF INTEREST
ESTABLISH AN OFFICE OF THE BOARD OF DIRECTORS
REIMBURSEMENT OF PROXY EXPENSES
NO GREENMAIL
0
5
10
15
20
25 2005 2004 20032006
ONE VOTE PER SHARE:Requests that the board recapitalize the company so that
all shares are entitled to only one vote.
LIMIT OUTSIDE DIRECTORSHIPS: Requests that the board limit the number of public
company boards on which a director may serve
at one time.
INDEPENDENT COMMITTEE TO ADDRESS CONFLICTS OF INTEREST:Requests that the board establish an independent
committee to address con?icts of interest.
DIRECTORS’ LIABILITY FORGROSSLY NEGLIGENT CONDUCT:Requests that the company’s charter be amended so
that directors are not exempt from personal liability
for gross negligence.
C O R P O R A T E G O V E R N A N C E - R E L A T E D S H A R E H O L D E R P R O P O S A L S
ESTABLISH AN OFFICE OF THE BOARD OF DIRECTORS:Requests that the board establish an O;ce of the Board
of Directors to enable direct shareholder communication
with the board.
ADOPT GLOBAL CORPORATE STANDARDS:Requests that the board adopt a global set of
corporate standards.
REIMBURSEMENT OF PROXY EXPENSES: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.
ESTABLISH A MAJORITY VOTE SHAREHOLDER COMMITTEE: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.
NO GREENMAIL:Requests that the board forbid the payment
of greenmail.
* Includes one proposal seeking adoption of a policy that
key committees be chaired by individuals who are not
over committed.
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The following compensation-related shareholder proposals were most frequently included
in the 2003, 2004, 2005 and 2006 proxy statements of the Fortune 100 companies:
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.
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
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.
PROHIBITION OF EXECUTIVE EQUITY GRANTS:Requests that the board adopt a policy prohibiting
future equity grants to executives.
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
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:Requests that 50% of director compensation be paid
in restricted stock.
0
5
10
15
20
8
6 6
12
7
12
2
9
3
11 11
9 9
14
3
16
18
910
16
NU
MB
ER O
F C
OM
PA
NIE
S
EXECUTIVE COMPENSATION GENERALLY
LIMITATION ON SEVERANCEAMOUNTS
PAY DISPARITY PERFORMANCE-BASED EQUITY OR INCENTIVE COMPENSATION
PROHIBITION OF EXECUTIVEEQUITY GRANTS
DIRECTOR COMPENSATION
34
0 0
8
15
8
6 6
SHAREHOLDER APPROVAL
DISCLOSURE REDUCE CEO COMPENSATION
0 0 00 0 0 0
2005 2004 20032006
* Note that for the 2007 proxy season, the SEC’s enhanced
compensation disclosure rules will be in e=ect.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 2 9 |
D I R E C T O R C O M P E N S A T I O N
0
10
20
30
40
50
60
1112233
31
56
NU
MB
ER O
F C
OM
PA
NIE
S
RECOMMENDED BY NOMINATING/GOVERNANCE COMMITTEEAND APPROVED BY BOARD
RECOMMENDED BY COMPENSATION COMMITTEE ANDAPPROVED BY BOARD
RECOMMENDED BY BOTH COMPENSATION AND NOMINATING/ GOVERNANCE COMMITTEES AND APPROVED BY BOARD
DETERMINED BY COMPENSATION COMMITTEE
RECOMMENDED BY BOARD AFFAIRS COMMITTEE ANDAPPROVED BY BOARD
OTHER
APPROVED BY CORPORATE GOVERNANCE AND/ORNOMINATING COMMITTEE
NOT PUBLICLY SPECIFIED
APPROVED BY THE BOARD
0
20
40
60
80
100
NU
MB
ER O
F C
OM
PA
NIE
S
98 98 98 98
CASH RETAINER
91
8480
COMMITTEERETAINERS
8483
65 65
OTHER BENEFITS
55
44
63
70
4742
3025
RESTRICTED STOCK OR UNITS
5450
5359
MEETING ATTENDANCE FEES
36
48
36
50
31
NON-RESTRICTEDSTOCK OR UNITS
93
STOCK OPTIONSOR STOCK APPRECIATION RIGHTS
DETERMINAT ION OF D IRECTOR COMPENSAT ION
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.
OVERALL COMPOS I T I ON O F D IRECTOR COMPENSAT ION
2005 2004 20032006
DIR
EC
TO
R E
QU
ITY
CO
MP
EN
SA
TIO
N
3 0 S h e a r m a n & S t e r l i n g l l p
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 IRECTOR STOCK OPT ION AND STOCK APPREC IAT ION R IGHT GRANTS
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.
[56] NO STOCK OPTIONS GRANTED
[2] INITIAL GRANTS ONLY
BOTH INITIAL AND ANNUAL GRANTS
[6]
ANNUAL GRANTS ONLY [36]
T IM ING O F STOCK OPT ION GRANTS
0
10
20
30
GRANT EXPRESSEDAS A DOLLAR VALUE
GRANT EXPRESSED AS SPECIFICNUMBER OF OPTIONS
9
BOTH6
29
NU
MB
ER O
F C
OM
PA
NIE
S
15
25
5
VALUE O F STOCK OPT ION GRANTS
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 3 1 |
D I R E C T O R E Q U I T Y C O M P E N S A T I O N
VALUE O F RESTR ICTED STOCK OR UN I T GRANTS
T IM ING OF RESTR ICTED STOCK OR UN I T GRANTS
ANNUAL [32] GRANTS
ONLY
[6] BOTH INITIAL AND ANNUAL GRANTS
NO RESTRICTED [58] STOCK OR
UNITS GRANTED
[4] INITIAL GRANTS ONLY
0
5
10
15
20
25
30
6
11
25
NU
MB
ER O
F C
OM
PA
NIE
S
GRANT EXPRESSED AS A DOLLAR VALUE
GRANT EXPRESSED AS SPECIFICNUMBER OF SHARES
BOTH
ANNUAL [37]GRANTS ONLY
[8] BOTH INITIAL AND ANNUAL GRANTS
[52] NO NON-RESTRICTED STOCK OR UNITS GRANTED
[3] INITIAL GRANTS ONLY
31
9 8NU
MB
ER O
F C
OM
PA
NIE
S
GRANT EXPRESSED AS ADOLLAR VALUE
GRANT EXPRESSED AS SPECIFIC NUMBER OF SHARES
BOTH
5
10
15
20
25
35
30
0
VALUE O F NON -RESTR ICTED STOCK OR UN I T GRANTS
T IM ING OF NON -RESTR ICTED STOCK OR UN I T GRANTS
D IRECTOR NON -RESTR ICTED STOCK OR UN I T GRANTS
Of the Fortune 100 companies, 48 grant non-restricted stock or units
as a component of their directors’ compensation, compared with 36 of
the Fortune 100 companies surveyed in 2005. Stock and unit grants
may be made annually or upon initial election to the board and may be
expressed as a dollar value or a speci>c number of shares.
D IRECTOR RESTR ICTED STOCK OR UN I T GRANTS
Of the Fortune 100 companies, 42 grant restricted stock or units as
a component of directors’ compensation, compared with 47 of the
Fortune 100 companies surveyed in 2005. Restricted stock and unit
grants can be made annually or upon initial election to the board and
may be expressed as a dollar value or a speci>c number of shares.
DIR
EC
TO
R C
AS
H C
OM
PE
NS
AT
ION
3 2 S h e a r m a n & S t e r l i n g l l p
$20,000 OR LESS
$20,001-40,000
$40,001-60,000
$60,001-80,000
$80,001-100,000
$100,001-130,000
$130,001-150,000
$150,000OR MORE
NOT PUBLICLY DISCLOSED
21
5
8
5 53
11 0 1 1 1 002 2 2
27
19
34 35 35
3132
22
19
0
5
10
15
20
25
30
35
NU
MB
ER O
F C
OM
PA
NIE
S2006 2005 2004
AMOUNT OF ANNUAL CASH RETA INER
Ninety-eight of the Fortune 100 companies pay annual cash retainers
to directors. Cash portions of annual retainer amounts range from
$20,000 to $200,000.
0
5
10
15
20
25
30
35
2
8
11
28
NU
MB
ER O
F C
OM
PA
NIE
S STOCK OR UNITS
RESTRICTED STOCK OR UNITS
OPTIONS
OTHER
PERMIT DEFERRAL OF ANNUAL RETAINER AND
FEES AT THE ELECTIONOF THE DIRECTOR
[37] BOTH PERMIT DEFERRAL OF ANNUAL RETAINER AND FEES AT DIRECTOR’S ELECTION AND REQUIRE DEFERRAL OF A PORTION OF ANNUAL RETAINER AND FEES
DO NOT SPECIFY DEFERRAL OF ANNUAL
RETAINER AND FEES
[3] REQUIRE DEFERRAL OF A PORTION OF ANNUAL RETAINER AND FEES
[44]
[16]
EQU I TY E LECT IONS IN L I EU O F CASH
Of the Fortune 100 companies, 42* permit directors to elect to receive
options, stock, restricted stock or a combination thereof, in lieu of all or
a portion of their annual cash retainers, compared with 49 of the
Fortune 100 companies surveyed in 2005 and 64 in 2004.
DEFERRAL O F BOARD COMPENSAT ION
Of the Fortune 100 companies, 84 require or permit directors to defer
all or a portion of their cash compensation, compared with 87 of the
Fortune 100 companies surveyed in 2005 and 79 in 2004.
* Two of these companies provide directors who make
such an election with additional equity grants.
1716
15
1313
7 76
56
45
2 2 2
1213
9
433
0 0
7
9
211
0
5
10
15
20
NU
MB
ER O
F C
OM
PA
NIE
S
BOARD MEETING FEE IS HIGHER THAN COMMITTEE MEETING FEE
MEETING FEES FOR TELEPHONIC MEETINGS/ UNANIMOUS WRITTEN CONSENT ARE LOWER THAN IN-PERSON MEETING FEES
EXECUTIVE SESSIONS/SPECIAL BOARD MEETING FEES PAID
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 ONLYIF THE MINIMUM NUMBER OF REQUIRED MEETINGS IS EXCEEDED
BOARD CHAIRMAN MEETING FEE IS HIGHER THAN COMMITTEE CHAIRMANMEETING FEE
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 3 3 |
D I R E C T O R C A S H C O M P E N S A T I O N
[1] BOARD MEETING ATTENDANCE FEES ONLY
BOTH BOARD AND [45]COMMITTEE MEETING
ATTENDANCE FEES
COMMITTEE MEETING [4]ATTENDANCE FEES ONLY
[50] NO MEETING ATTENDANCE FEES
MEET ING ATTENDANCE F EES
Fifty of the Fortune 100 companies pay board
and/or committee meeting attendance fees.
AMOUNT OF MEET ING ATTENDANCE FEES
The amount of the meeting attendance fees di=ers
based on the type of meeting (e.g., board or
committee) and if it is in person or telephonic.
2005 2004 20032006
0
5
10
15
20
$900 $1,401-1,900
$1,901-2,400
$2,401+
1
3
12 12
18
NU
MB
ER O
F C
OM
PA
NIE
S
$901-1,400
0
5
10
15
20
$900 OR BELOW
$1,101-1,300
$1,301-1,500
$1,501+
2
16
13
15
3
NU
MB
ER O
F C
OM
PA
NIE
S
$901-1,100
DIR
EC
TO
R C
AS
H C
OM
PE
NS
AT
ION
3 4 S h e a r m a n & S t e r l i n g l l p
BOARD MEET ING ATTENDANCE F EES
Forty-six of the Fortune 100 companies pay meeting
fees to members of the board. The amounts of such
fees range from $900 to $3,000.*
COMMITTEE MEET ING ATTENDANCE FEES
Forty-nine of the Fortune 100 companies pay meeting
fees to members of committees. The amounts of such
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.
* One company pays a $40,000 >xed annual meeting retainer to
all board and committee members in lieu of a per meeting fee.
NU
MB
ER O
F C
OM
PA
NIE
S
0
10
20
30
40
50
60
70
80 7570 72
69
ALL COMMITTEE CHAIRS
5959
40
27
AUDIT COMMITTEE CHAIR ONLY OR AUDIT COMMITTEE CHAIR RECEIVEDHIGHER RETAINER
2128
149
ALL AUDIT COMMITTEE MEMBERS ONLY OR AUDIT COMMITTEE MEMBERS RECEIVEDHIGHER RETAINER
2521
18 17
COMPENSATION COMMITTEE CHAIR ONLY OR COMPENSATION COMMITTEE CHAIR RECEIVED HIGHER RETAINER
1316 15 17
ALL MEMBERS OF EACHCOMMITTEE
914
8
0
NOMINATING/GOVERNANCE COMMITTEE CHAIR ONLY ORNOMINATING/GOVERNANCE COMMITTEE CHAIR RECEIVED HIGHER RETAINER
55 3 4
ALL COMPENSATION COMMITTEE MEMBERS ONLY OR COMPENSATION COMMITTEE MEMBERS RECEIVED HIGHER RETAINER
552
5
BOARD CHAIR ONLY
33 0 0
NOMINATING/GOVERNANCE COMMITTEE MEMBERS ONLY OR NOMINATING/ GOVERNANCE COMMITTEE MEMBERS RECEIVEDHIGHER RETAINER
11
OTHER*
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 3 5 |
D I R E C T O R C A S H C O M P E N S A T I O N
COMMITTEE RETA INERS
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.
2005 2004 20032006
* Includes >nancial, executive, public policy, litigation and industry-speci>c committees (or the chairs of such committees).
DIR
EC
TO
R C
AS
H C
OM
PE
NS
AT
ION
3 6 S h e a r m a n & S t e r l i n g l l p
COMMITTEE RETA INER AMOUNTS
Of the Fortune 100 companies, 16 pay a retainer
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
and $2,500 to $15,000 in 2004.
COMMITTEE CHA IR RETA INER AMOUNTS
Of the Fortune 100 companies, 70 pay a retainer
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.
0
1
2
3
4
5
7
6
$3,000 $3,001-5,000
$5,001-8,000
$8,001-35,000
3 3
7
3
NU
MB
ER O
F C
OM
PA
NIE
S
0
5
10
15
20
25
30
54
14
17
30
$2,000-5,000
$5,001-9,000
$9,001-13,000
$13,001-17,000
$17,001-25,000
NU
MB
ER O
F C
OM
PA
NIE
S
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 3 7 |
D I R E C T O R C A S H C O M P E N S A T I O N
COMPENSAT ION COMMITTEE RETA INERS
Five of the Fortune 100 companies surveyed this
year and in 2005 pay a retainer (or a higher
retainer) to members of the compensation
committee, compared with three of the Fortune
100 companies surveyed in 2004. The amounts
of such retainers range from $4,000 to $25,000
compared with $5,000 to $25,000 at the
companies surveyed in each of 2005 and 2004.
COMPENSAT ION COMMITTEE CHA IR RETA INERS
Of the Fortune 100 companies, 25 pay a retainer
(or a higher retainer) to the chair of the
compensation committee, compared with 22 of
the Fortune 100 companies surveyed in 2005
and 18 in 2004. The amounts of such retainers
range from $5,000 to $25,000, which is the
same as in 2005 and 2004.
0
1
2
3
4
5
NU
MB
ER O
F C
OM
PA
NIE
S
$5,000 $10,000 $15,000 $25,000
11
$4,000
1 11
0
2
4
6
8
12
10
$5,000 $5,001-10,000
$10,001-15,000
$15,001-20,000
$20,001-25,000
2 2
4
11
6
NU
MB
ER O
F C
OM
PA
NIE
S
DIR
EC
TO
R C
AS
H C
OM
PE
NS
AT
ION
3 8 S h e a r m a n & S t e r l i n g l l p
AUD I T COMMITTEE RETA INERS
Of the Fortune 100 companies, 28 pay a retainer
(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
$4,000 to $50,000 in 2005 and $5,000 to
$25,000 in 2004.
AUD I T COMMITTEE CHA IR RETA INERS
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
40 in 2004. The amounts of such retainers
range from $5,000 to $35,000, compared with
$5,000 to $75,000 in 2005 and $5,000 to
$75,000 in 2004.
$2,000-5,000
$5,001-10,000
$10,001-15,000
$15,001-20,000
$20,001-25,000
1 1
119
6
0
5
10
15
20
NU
MB
ER O
F C
OM
PA
NIE
S
0
5
10
15
20
$5,000-10,000
$10,001-15,000
$15,001-20,000
$20,001-25,000
$25,001-30,000
$30,001-35,000
2
13
16
1
18
9
NU
MB
ER O
F C
OM
PA
NIE
S
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 3 9 |
D I R E C T O R C A S H C O M P E N S A T I O N
NOMINAT ING /GOVERNANCE COMMITTEE RETA INERS
Three of the Fortune 100 companies pay a
retainer (or a higher retainer) to members of
the nominating/governance committee, which
is the same as in 2005. The amounts of such
retainers range from $4,000 to $10,000,
compared with $5,000 to $10,000 in 2005.
NOMINAT ING /GOVERNANCECOMMITTEE CHA IR RETA INERS
Fourteen of the Fortune 100 companies pay a
retainer (or a higher retainer) to the chair of
the nominating/governance committee, compared
with 10 of the Fortune 100 companies surveyed
in 2005. The amounts of such retainers range
from $5,000 to $20,000, which is the same as
in 2005.
$4,000 $5,000 $10,000
1 1 1
0
1
2
3
4
NU
MB
ER O
F C
OM
PA
NIE
S
0
2
4
6
10
8
$5,000 $5,001-10,000
$10,001-15,000
$15,001-20,000
2
1
9
2
NU
MB
ER O
F C
OM
PA
NIE
S
0
10
20
30
40
50
60
NU
MB
ER
OF
CO
MP
AN
IES
67
1213
18
2529
58
47
40
25 2420
17
3
10
0 0
12
18
REIMBURSEMENT FOR TRAVEL/ BUSINESS EXPENSES
LIFE/TRAVEL/ ACCIDENT INSURANCE
PERQUISITES (INCLUDING AIRCRAFT USAGE, PRODUCTS AND SERVICES AND MEDICAL AND DENTAL INSURANCE ATREDUCED COST)
PARTICIPATION IN MATCHING CONTRIBUTION PROGRAMS
PERQUISITES AND EXPENSE REIMBURSEMENTAVAILABLE 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
0 0 0 0
60
26
35*
25
20
10
3
13
DIR
EC
TO
R C
AS
H A
ND
OT
HE
R C
OM
PE
NS
AT
ION
4 0 S h e a r m a n & S t e r l i n g l l p
OTHER FORMS OF D IRECTOR COMPENSAT ION
2005 2004 20032006
LEAD D IRECTOR RETA INER
Twenty of the Fortune 100 companies pay a
retainer to the lead or presiding director.
The amounts of such retainers range from
$3,000 to $75,000*
0
2
4
6
10
8
$3,000- 5,000
$5,001-15,000
$15,001-30,000
$30,001-75,000
2
3
7
8
NU
MB
ER O
F C
OM
PA
NIE
S
* One company pays an additional retainer to its lead director
in the form of an additional equity grant.
* Eight of the Fortune 100 companies permit one or more directors to use company-owned or leased aircraft.
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 4 1 |
A G R E E M E N T S W I T H N A M E D E X E C U T I V E O F F I C E R S
NEO EMPLOYMENT AGREEMENTS
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.
NEO CHANGE IN CONTROL ARRANGEMENTS
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
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.
BOTH CEO AND AT [34]LEAST ONE NEO
NONE [43]
[13] AT LEAST ONE NEO ONLY
[10] CEO ONLY
[33] BOTH CEO AND AT LEAST ONE NEO HAVE STAND-ALONE ARRANGEMENTS
NONE [62]
[5] AT LEAST ONE NEO ONLY HAS A STAND-ALONE ARRANGEMENT
AG
RE
EM
EN
TS
WIT
H N
AM
ED
EX
EC
UT
IVE
OF
FIC
ER
S
4 2 S h e a r m a n & S t e r l i n g l l p
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.
[10] AT LEAST ONE NEO ONLY
[18] BOTH CEO AND AT LEAST ONE NEO
NONE [72]
6670
96
915
1111
17 20
49
34
NU
MB
ER O
F C
OM
PA
NIE
S
DIRECTOR STOCKOWNERSHIPGUIDELINES ONLY
EXECUTIVE STOCK OWNERSHIP GUIDELINES ONLY
BOTH DIRECTORAND EXECUTIVE STOCK OWNERSHIP GUIDELINES
0
10
20
30
40
50
60
70
2005 2004 20032006
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 4 3 |
S T O C K O W N E R S H I P G U I D E L I N E S
D IRECTOR AND EXECUT IVE STOCK OWNERSH IP GU IDEL INES
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.
ST
OC
K O
WN
ER
SH
IP G
UID
EL
INE
S
4 4 S h e a r m a n & S t e r l i n g l l p
TERMS OF D IRECTOR STOCK OWNERSH IP GU IDEL INES
MULTIPLE OF ANNUAL RETAINER
SPECIFIC NUMBER OF SHARES
HOLD SHARES UNTIL SERVICE TERMINATED OR FORA SPECIFIED PERIOD THEREAFTER
RETAIN PERCENTAGE OF SHARES ACQUIRED THROUGH OPTIONEXERCISES AND EQUITY AWARDS (AFTER TAXES AND COSTS)
SPECIFIC DOLLAR VALUE
OWNERSHIP ENCOURAGED, NOT MANDATORY
OWN A “SUBSTANTIAL”, “APPROPRIATE” OR “MEANINGFUL”AMOUNT OF STOCK OR “SIGNIFICANT EQUITY STAKE”
OTHER
UNSPECIFIED GUIDELINES
ADDITIONAL EQUITY GRANT IF GUIDELINESATTAINED OR EXCEEDED0
10
20
30
40
50
60
70
113336
1013
23
41
NU
MB
ER O
F C
OM
PA
NIE
S
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 4 5 |
S T O C K O W N E R S H I P G U I D E L I N E S
TERMS OF EXECUT IVE STOCK OWNERSH IP GU IDEL INES
0
10
20
30
40
50
60
70
80
11111
9
18
63
NU
MB
ER O
F C
OM
PA
NIE
S
MULTIPLE OF BASE SALARY
RETAIN PERCENTAGE OF SHARES ACQUIRED IN CONNECTION WITH OPTION EXERCISES AND EQUITY AWARDS (AFTER TAXES AND COSTS)
SPECIFIC NUMBER OF SHARES
UNSPECIFIED GUIDELINES
BONUS PAID IN COMMON STOCK UNTIL GUIDELINES ARE SATISFIED
PERCENTAGE OF SHAREHOLDINGS ON A SPECIFIED DATE PLUS PERCENTAGE OF SHARES AWARDED THEREAFTER
OWNERSHIP ENCOURAGED, NOT MANDATORY
ADDITIONAL EQUITY GRANT IF GUIDELINES ATTAINED OR EXCEEDED
SU
RV
EY
ME
TH
OD
OL
OG
Y
4 6 S h e a r m a n & S t e r l i n g l l p
* 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.
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:
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
c o r p o r a t e g o v e r n a n c e p r a c t i c e s | 4 7 |
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.
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