Eager to prove to shareholders that board members share the risk as well as responsibility for running the show, banks are increasingly rewarding outside directors with stock options and restricted stock, according to a study by KPMG Peat Marwick.
Bank directors said the stock awards send a message to shareholders that they are owners, too.
Stock compensation is also strong motivation for better board member performance, several directors said.
"I unequivocally think it works," said Rotan E. Lee, partner at the law firm Sherr Joffe & Zuckerman in West Conshahoken, Pa., and a director of Mellon Bank Corp. in Pittsburgh.
Mr. Lee has been a Mellon board member since 1993. His business experience includes a stint as chairman of the Philadelphia school district and two years as chief operating officer of RMS Technologies Inc., an information technology company based in Philadelphia.
The 47-year-old director said banks, like many other financial services companies, have been warming to the idea of stock compensation for directors since the late 1980s.
"Over the last decade, there has been a real intensive effort to encourage top executives and directors to be in the game," Mr. Lee said. "Boards are being encouraged to have an investment in the business itself. It's easier to be detached when you're just earning a fee."
Shareholders have been driving the trend, bank directors said, and have become increasingly vocal in their demand for greater accountability on the part of board members, directors said.
"It's a very healthy dialogue," said Patricia T. Hayot, a director at Huntington Bancshares in Columbus, Ohio, and the head of Columbus School for Girls, a private academy. "Whatever it takes to make the directors more responsive to their constituents is a positive thing."
KPMG's survey indicates even more banks are getting into the game. Nearly three-fourths of the 50 banks that participated in this year's compensation study said they offered stock to directors. The respondents represent the nation's largest banks, including Chase Manhattan Corp. and Citicorp.
KPMG, which conducts this survey annually, found that directors at banks paying stock and cash got a $77,263 paycheck this year. Three-fourths of that, or $58,276, was cash and the rest was stock, according to the survey.
One year ago, 53% of the 50 banks responding offered stock. Last year the median paycheck for a director getting stock and cash was $67,050. Roughly three-fourths of that, or $49,500, was cash and the rest was stock, the study found.
