Total pay for outside directors at the nation’s largest corporations increased by 6% in 2013, fueled by higher stock-based compensation, according to a new analysis by global professional services company Towers Watson (NYSE, NASDAQ: TW). The study also found that cash compensation remained flat for the first time since 2007, when proxy disclosure rules were enacted requiring companies to report actual values received by directors in summary compensation tables.

According to Towers Watson’s annual analysis of director compensation at Fortune 500 companies, median total direct compensation for directors climbed 6% last year, to nearly $240,000, up from $227,000 in 2012. The increase is double the 3% increase in director total compensation in 2012. Total compensation includes cash pay, and annual or recurring stock awards. The analysis found that the median value of cash compensation remained flat last year at $100,000, while compensation from annual and recurring stock awards increased 4%, to $130,500, the largest increase since 2011. More than half (56%) of directors’ pay in 2013 was delivered through stock compensation, up slightly from 55% in 2012.

“The increase in stock compensation was clearly the driving force behind the increase in total pay for directors last year. This is a change from the previous year, when cash compensation increases were the driver,” said Todd Lippincott, North America leader of Executive Compensation consulting at Towers Watson. “While the proportion of pay delivered to directors in cash remained flat, companies continued to shift how they deliver pay to directors. In fact, the prevalence of paying fees for board and committee meeting attendance dropped at a faster rate than in previous years, while the use of retainers to compensate committee members continued to rise.”

According to the analysis, the annual cash board retainer remained flat in 2013, at $80,000. Less than a quarter of companies (23%) now pay directors per-meeting fees for board meetings, while just 28% provide meeting fees for committee service. Conversely, the use of committee retainers has continued to increase.

“The shift to fixed retainers is likely to continue, as is the broader upward trajectory in director compensation. Companies will continue to monitor and evaluate their director pay programs closely as the demand for experienced and talented directors remains strong, and the time commitment and visibility of the role continues to grow,” said Lippincott.

Among other survey findings:

  • Companies continued to deliver stock compensation to outside directors primarily through full-value share grants, with 84% granting a single type of full-value shares.
  • Stock ownership guidelines and stock retention policies for directors have been adopted by most companies. In 2013, nine out of 10 Fortune 500 companies had either or both types of mandates. The median value of stock ownership required for directors subject to stock ownership guidelines increased from $350,000 in 2012 to $400,000 in 2013.

About the Analysis

Towers Watson analyzed the compensation for outside directors at 474 publicly owned Fortune 500 companies that filed their fiscal year 2013 proxy statements by June 30, 2014. Data for these companies were then compared against the results of an analysis of 469 Fortune 500 companies in 2012.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.