More money for meetings (and drugs for free)…

February 9, 2012

AmerisourceBergen (ABC) is one of those companies in your life that you may never have heard of: It distributes prescription and over-the-counter drugs, brand names and generics, home health-care supplies and much, much more. It’s big — the company’s market-cap is over $10 billion, and its revenues in the fiscal year that ended September 30 were more than $80 billion.

But the company caught our attention this week because its directors decided to give themselves a big raise, as laid out in an exhibit to the 10-Q the company filed on Tuesday morning. It seems to be that time of year: We’ve been seeing a number of boards giving themselves big payouts of various kinds, including the recent decision at Google (GOOG) to double director stock grants.

Until January 1 this year, non-employee directors at AmerisourceBergen got a modest annual cash retainer of $60,000. That’s now jumped to $100,000 — a 67% cash raise (though directors may opt to take 50% or more of it in equity). Chairman Richard C. Gozon will get $150,000 instead of the $90,000 he was getting, also a 67% bump.

Meantime, the board decided to give one another an annual equity award of $125,000, payable in either restricted stock or restricted stock units, as the mood strikes each director. That’s up 25% from an annual grant of $100,000 in stock options.

There’s a little give-and-take involved as well. For example, last month’s proxy says directors are eligible for an initial grant of $50,000 restricted stock units on first taking a board seat; that is no longer mentioned in the new arrangement. But then, the new retainer and equity grant make up the difference in less than a year — and for sitting directors, the change is more or less irrelevant.

The new arrangement also appears to eliminate a variety of per-meeting fees; previously, directors got $3,000 for each in-person board meeting attended ($7,500 for the board chairman), and $1,500 for each committee meeting, with half that much paid out for conference calls. Committee chairs got between $3,000 (for the governance and nominating committee) and $5,000 (for the audit and corporate responsibility and the compensation and succession planning committees) per meeting, also cut to 50% for a “telephonic meeting.”

So under the old pay arrangements, the board’s five meetings in fiscal 2011 meant up to $15,000 more for each director and $37,500 more for the board chairman, assuming 100% attendance and all in-person gatherings. The compensation committee met six times — an extra $30,000 for the chairman and $9,000 for each committee member, again, assuming in-person meetings and perfect attendance. The Audit Committee met 12 times — $60,000 more for the chairman and $18,000 for the committee members.

On that front, pay will come down a smidgen: The audit-committee chair will get an extra $20,000 a year instead of per-meeting payments; the comp-committee chair will get an extra $15,000 a year; and the governance and finance committee chairs will get $10,000 each.

Relative to some of the board pay we’ve seen, these may sound like picayune numbers, but they add up. Last year, AmerisourceBergen’s directors each wound up taking home $200,000 or more once you factor in stock, options and perks. (OK, technically, one director made just $199,002.) The total tab was $1.76 million, for at most a couple dozen meetings. We’re pretty sure the new rules will increase that figure, but we’ll have to wait until the company’s next proxy, early next year, to be sure.

Meantime, AmerisourceBergen directors continue to get one benefit that’s increasingly valuable in today’s world: 100% company-paid coverage of all prescription drugs, not only for the directors themselves, but for their spouses and any children under age 26. Only one director used this benefit last year, to judge from the proxy: Charles H. Cotros, and it’s hard to figure out just what it cost, given that it’s wrapped up in a $17,586 “other compensation” figure that also includes dividends paid on restricted shares.

As for AmerisourceBergen’s shareholders, it’s hard to tell how happy they might be with the change. The company did eke out a minimal gain over the medical distribution business, to judge from total-return figures on Morningstar.com, but it was small, at 1.2 percentage points. More recently, it’s been trailing its peers, however, so we’ll see how things look in a little over a year, when the board’s 2012 pay is added up in its proxy.

Image source: Money Meeting image via Shutterstock.com

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