Google Effect' May Drive up Pay for Corporate Board Members
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`Google Effect' May Drive Up Pay for Corporate Board Members By Jonathan Thaw December 16, 2005 Google Inc.'s surging stock price made its employees the envy of Silicon Valley. Now the same may happen with the search engine's corporate directors. The Mountain View, California-based company is giving new board members options and stock worth millions of dollars, compared with the $175,000 annual salary directors receive at Microsoft Corp., according to the Corporate Library, a research firm that rates corporate governance. Google pays directors more than any other company, the Corporate Library says. Google paid Ann Mather, the former finance chief of animation studio Pixar, $2.36 million in options as an initial grant when she joined the board last month, according to the Corporate Library. She joins Intel Corp. Chief Executive Officer Paul Otellini, whose options are worth about $24.2 million, more than his current Intel stake. ``The company's done fabulously well,'' said Robert Daines, a professor of law and business at Stanford University's Law School near Palo Alto, California. ``This is a Google effect.'' The value of Mather's stock grant is the highest initial option award granted to a director in the Corporate Library's three-year database, according to Paul Hodgson, a senior researcher at the Portland, Maine-based firm. He didn't say what methodology was used to value the options. Sarbanes-Oxley Companies are increasing pay for directors as responsibilities become more onerous, said Tuck Rickards, a managing director at Russell Reynolds Associates, a Boston-based executive search firm. New regulations, including Sarbanes-Oxley and Regulation Fair Disclosure, have added to the work, he said. At Google, board members oversee a booming Internet advertising business that transformed a Silicon Valley startup into the fourth-most valuable U.S. technology company. As the company's shares have eclipsed $400, its board members, including the two founders, have cashed in more than $4.46 billion, according to the Washington Service. Stock options held by directors including Otellini, Genentech Inc. CEO Arthur Levinson and Stanford University President John Hennessy make them among the highest paid independent directors ever, Hodgson said. Shares of Google rose $3.57 to $422.53 yesterday in Nasdaq Stock Market composite trading. They have more than doubled this year. ``Google is very lucky to have world-class board members who each bring their own unique expertise to our growing company,'' spokeswoman Lynn Fox said in a statement. ``We try to offer our directors a competitive compensation package, which is determined at the time of each appointment and fluctuates depending on market conditions.'' Mather isn't commenting, Fox said. The options vest over five years. Above Average Mather will be required to attend quarterly meetings at Google's headquarters and periodic conference calls, according to filings with the U.S. Securities and Exchange Commission. She is also chairwoman of Google's audit committee. She made a salary of $548,152 at Emeryville, California-based Pixar in 2003 before retiring in May 2004. The average director pay at companies in the Standard & Poor's 500 Index in 2004 was $139,090, a 19 percent rise from the $116,853 average paid in 2002, according to Equilar Inc., a San Mateo, California-based company that tracks executive pay. Enormous Mather, 45, will receive similar pay to Shirley Tilghman, president of Princeton University, who joined Google's board in October. Tilghman, a professor of molecular biology, received options worth $1.62 million and will be refunded for first-class air-travel and on occasion, travel via private jet, according to regulatory filings. She also received 6,000 stock units. The Corporate Library didn't provide the value of Tilghman's options. Bloomberg News valued them using the Black-Scholes pricing formula, a 10-year term, a stock-volatility rate of 40.2 percent, and a comparable U.S. Treasury yield for the risk-free interest rate. Bloomberg News discounted the result by 41 percent to adjust for vesting restrictions and the inability to be traded. The restricted stock grants were calculated based on Google's share price on the day of the award. Tilghman declined to comment, said Judith Cabral, who works in her office at Princeton. ``It's an enormous amount of money before someone has even arrived,'' said Charles Elson, director of the University of Delaware's corporate governance center in Newark, Delaware. Cloud Judgment? Paying directors so highly may cloud their judgment, Daines said. ``One threat from high pay is that board members may be too reliant on their position as a director and people wonder whether this compromises their independence,'' Daines said. ``You might be loathe to stir the pot.'' The wealth generated for directors at Google parallels the rising fortunes of workers and house prices in the region. Silicon Valley salaries averaged $85,958 in 2005, the highest of 13 metropolitan areas tracked by Dice Inc., a New York-based job listings Web site. That's up from the average of $84,200 in 2004. The median price of homes in Santa Clara County, where Google is based, was $668,000 in October, up 19 percent from a year ago, according to data from the State of California. Otellini, 55, makes a salary and bonus of $1.4 million at Intel, the world's biggest computer-chip maker. Otellini's stake in Intel is worth about $18.5 million, according to the Washington Service. He has an additional 4.6 million options to buy Intel shares, said Chuck Mulloy, a spokesman for the Santa Clara, California-based company. Otellini won't comment on his holdings, Mulloy said. Google ranks behind Redmond, Washington-based Microsoft, the world's largest software maker, Intel and Armonk, New York-based International Business Machines Corp. in market value. While Otellini hasn't cashed in any of his Google options, others who joined the board at the same time have. Ill-Advised Levinson in November sold $4.95 million of shares, representing about 20 percent of his option grant, according to the Washington Service, which tracks insider sales. Hennessy sold about a third of his holdings, worth $5.77 million, Bethesda, Maryland-based Washington Service said. Caroline Pecquet, a spokeswoman for Genentech, said the company doesn't discuss executives' financial planning. Stanford spokeswoman Kate Chesley said Hennessy declined to comment. ``It's a very bad sign for a director to sell stock and an ill-advised move,'' Elson said. ``It means they found somewhere else that they think has greater potential for their assets.'' .