Is Director Pay CounterIntuitive?

Forbes has found something quite surprising – high director pay may correlate with lower shareholder returns.

Cendant Corp. Chief Executive Henry Silverman has been bashed by the media for taking home princely pay even as his shareholders have suffered one of the worst stock price performances around. Less well known is that Cendant (nyse: CD – news – people )'s independent directors are richly paid, too.

Their $138,000 average annual compensation is, in fact, nearly three times what directors earned at the five companies whose stock prices have appreciated the most relative to their industries' over the past half-dozen years (one of four criteria used in the table below), according to data provided by BoardEx, a firm that analyzed corporate board pay for FORBES.

Could there be a connection between fat pay for directors and thin returns for shareholders? FORBES turned up some evidence of that. We ranked 194 companies in stock performance over the past six years relative to their industry averages. Then we looked at average director pay at the best and worst companies by this performance measure. At $69,887 each, outside directors at the five laggards earned 1.6 times what outside directors did at the five leaders.

Interesting. Is staying on the board more important at some places than actually worrying about shareholder return? If so, someone needs to re-align director incentives with company performance.

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