2007 Spencer Stuart Board Index Findings

Review of S&P 500 Proxies

Spencer Stuart

William B. ReevesManaging Director, Atlanta

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Changing Director Profile> Board independence a reality and trend toward more independent board

leadership• 81% of directors are independent • On 43% of boards, CEO is the only insider, up from 31% in 2002• 35% of boards separate the Chair and CEO roles, up from 25% in ’02 • 13% of Chairs are truly independent, up from 10% last year• 94% of boards have lead/presiding director (up from 36% in ’03)

> Profile of new directors continues to shift (329 in 2007)• Fewer active CEOs – 33%; down from 41% in ’02 and 53% in ’00• More active and retired other corporate executives (e.g., division

managers and functional unit leaders) – 21% vs. 7% in ’02• 33% are first-time public company directors • Slight increase in women – 19% vs. 16% in ’02 • More bankers and investors -10% vs. 5% in ’02• Fewer lawyers, consultants and accountants - 5% vs. 16% in ’02

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Changing Director Profile, cont’d

> CEO increasingly likely to be sole inside director and less likely to serve on any outside boards

• CEO sole insider on 43% of boards, up from 31% in ’02 and 23% in ’98• S&P 500 CEOs serve on 0.8 outside boards, down from 1.2 in ’02 and 2.0 in ’98

> Women directors and women CEOs at all-time high• 91% of boards have at least 1 woman director, up from 82% in ’02• 55% of boards have 2 or more women directors and 15% have 3 or more women• 15 women serve as CEOs, up from 7 in ’02

> Minority representation not growing• For the largest 200 S&P 500 companies, minorities (including African-Americans,

Hispanics and Asians) account for nearly 14% of directors, down slightly from ‘05• 85% of these boards have at least one minority director

> More companies appoint international directors• Half of the top 200 S&P 500 companies have at least one director from outside the

U.S., up from 45% in ’05

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Trends in Governance Practices

> Board size and number of meetings relatively stable

• 10.8 directors on average

• 8.3 board meetings/year on average, up from 7.5 in ‘02

> Mandatory retirement age more prevalent and older

• More boards have a retirement age: 79% vs. 55% in ’02

• But older: 67% have age 72+ vs. 35% in ’02

> One-year board terms becoming more common

• 62% of boards now have a one-year term, compared to 40% in ’02

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Trends in Governance Practices, cont’d

> Greater disclosure of director recommendation sources

• Information on sources of new director recommendations was disclosed for 57% of new appointees.

• Director recommendations came from the following sources:

- 61% from executive search firms

- 19% from insiders (e.g., CEO, controlling shareholders)

- 18% from non-management directors

> More disclosure of limits on other corporate directorships

• 55% of boards disclose limits on other corporate board service by their directors, up from 27% in ‘06

• 18% of boards limit other audit committee memberships for their own audit committee members, with the maximum typically set at 2 or 3. This is up from 5% in ’06

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Committee Trends

> Committees meeting more• Boards with 11+ audit cmte mtgs: 35% vs. 1% in ‘02• Average number of audit committee meetings is 9.5 vs. 5.0 in ’02• Compensation committees met on average 6 times, up from 5.8 in ’05• Nominating committees met on average 5 times, up from 4.4 in ’05

> Audit chairs less likely to be CEOs/top executives• Fewer active CEOs: 18% vs. 27% in ‘02• More retired CEOs: 24% vs. 18%• More active/retired CFOs: 13% vs. 3%• More active/retired accountants: 10% vs. 1%

> Compensation and nominating committee chairs are most often retired CEOs/top executives• CompCo chairs: 38% retired CEOs; 23% active CEOs • NomCo chairs: 25% retired CEOs; 22% active CEOs

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Non-Executive Chairs

> 35% of boards have separated the CEO/chair roles, up from 32% in ’06 and 25% in ’02

> 13% of NECs are independent, up from 10% in ’06

> Independent NEC profile (n=60)• 73% are retired; 27% active executives• 50% are a former CEO of another company• 17% are other retired executives/CFO/COO• 10% are investors/involved in private equity• 87% were on the board before becoming the chair

> Additional compensation is paid to 83% of independent NECs• Average additional compensation of $139,000

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Lead and Presiding Directors

> 94% of boards have a lead or presiding director> More boards shifting toward lead director designation

• 40% designate lead director, up from 28%• 60% designate presiding director, down from 72% in ‘04

> Fewer boards rotating presiding directors• Of boards with a presiding director, 19% rotate the role, down from

27% in ’06• And, for those that still rotate, trend is to rotate annually instead of

at every board meeting> Role most often filled by retired or active CEOs/presidents/chairs

> Additional compensation is paid to 32% of lead/presiding directors

• Average additional compensation of $22,600

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Director Compensation

> New disclosure requirements bring transparency to director and top executives’ compensation

> Board compensation reflects increased demands on directors

• All-inclusive average total compensation is $211,000

- Stock awards - 41%

- Options - 16%

- Cash - 35%

- Other – 8% (e.g., insurance premiums, charitable award programs)

• Average cash retainer of $68,560 is up 8% from ’06 and 73% greater than $39,538 in ‘02

• Fewer boards paying meeting fees: 52% vs. 70%

• But, meeting fees are higher: $2,027 vs. $1,596

• More pay equity in addition to retainer: 72% vs. 42%

• Fewer pay with stock options: 42% vs. 77%

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Committee Compensation

> Committee compensation has increased for chairs and is shifting toward retainers for members

• Retainers for committee chairs more prevalent and larger

- More boards pay: 88% vs. 55%

- Average retainer amount has increased 74% to $10,358 from $5,968 in ‘02

• Committee meeting fees less common

- Fewer boards pay, although still a majority: 54% vs. 64% in ‘02

- Average fees have increased to $1,549 from $1,191

• Committee member retainers increasing in popularity

- More boards pay: 31% vs. 13%

- Average retainer amount has increased to $6,468 from $4,822

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SSBI Supplemental Survey of Corporate Secretaries

> Boards seek more women and minority directors• 73% of boards seek to bring on minorities• 70% seek to bring on women

> Boards seek new skills• Financial expertise - 77%• Active CEO/COO – 68%• Retired CEO/COO – 49%• International expertise – 52%• Technology expertise – 36%• Marketing expertise – 35%• Legal expertise – 8%• HR expertise – 7%• Other (e.g., industry) – 22%

• Source: 2007 Spencer Stuart Board Index Supplemental Survey. 119 corporate secretaries responding.

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> CEO succession approach varies• 25% of boards do not have an emergency succession plan• 62% of boards include CEO succession on the agenda annually; 34% more

than once a year • Primary responsibility for succession planning split between nominating

committee (41%) and compensation committee (40%), although many boards now cite that multiple committees or the entire board are responsible

• 53% of boards use a formal review process to assess potential successors. Of these, 44% benchmark internal candidates against external ones

• 23% of boards encourage top internal candidates to take on outside public board directorships

> Shareholder engagement increasingly prevalent• 37% of boards, up from 22% in ’06, report that individual directors had direct

contact with shareholders• Most frequently raised topics: CEO compensation (28%), majority voting

(22%), and other concerns about board composition (17%)

• Source: 2007 Spencer Stuart Board Index Supplemental Survey. 119 corporate secretaries responding.

Supplemental Survey of Corporate Secretaries, cont’d

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> Majority cite limits on outside board service • 58% of boards limit outside public board service for their CEOs.

- 7% allow 0 outside boards- 34% allow 1-2 outside boards- 17% allow 3-4 outside boards

• 32% of boards limit outside board service for other senior executives- 11% allow 0 outside boards- 19% allow 1-2 outside boards- 3% allow 3 outside boards

> SEC disclosure requirements have impacted compensation committees• 82% of boards spent additional time discussing and reviewing executive

compensation• 46% held more frequent meetings• 27% attribute compensation policy changes to the new rules

• Source: 2007 Spencer Stuart Board Index Supplemental Survey. 119 corporate secretaries responding.

Supplemental Survey of Corporate Secretaries, cont’d