Big Demands, Big Rewards
What Hawaii’s Top Execs Are Paid
(page 5 of 5)
Inside the Boardroom
“In the old days, it was considered prestigious to be on boards and it was kind of a big honor,” says Walter A. Dods Jr., who, during his 50-year career, has served on more than 100 nonprofit boards and about 25 for-profit boards. “But after a couple of the major financial crises of the ’80s, ’90s and, more recently, that’s changed things.”
In the past, the board’s major role was to offer representation and advice to management, says Jeff Watanabe, the retired founder of the law firm of Watanabe Ing.
“Now, there’s a real need for people who can conduct oversight and that requires a whole different skill set.”
With those new responsibilities comes increased risk, says Watanabe, who has served on roughly 25 nonprofit and 25 for-profit boards throughout his career. “The exposure you have as a director of a public company is much higher today than it was even a few years ago.”
In the case of Enron, which was the biggest corporate bankruptcy in U.S. history at the time, 18 former directors agreed to a $168 million settlement of an investor lawsuit after the company collapsed in 2001.
“There’s huge risk involved and the responsibility of a director and especially the chairman is heavy,” Dods says.
Board members of publicly traded companies are not only responsible to shareholders who are concerned about their returns, they are also responsible to employees and the community, and each of the three constituencies has a different way of measuring the board’s value.
Generally speaking, Watanabe says, the dynamic between management and the board is much more collaborative, which increases efficiency.
Putting off their pay
Nonemployee directors at Bank of Hawaii – as well as most other publicly traded companies – can defer the payment of their annual retainers and meeting fees, or all of their annual retainers. Deferred amounts are generally payable soon after the director leaves the board. BOH directors David Heenan, Robert Huret, Donald Takaki and Barbara Tanabe elected to defer all their fees earned in 2009.
“Most times, it’s deferred because of taxes,” Watanabe says. “The reason is you want to be able to take income when your income tax rates are the lowest. So, if you’re in a high income-tax bracket today, but, 10 years from now, you’re going to retire and your income is going to go down, you want to move income that you would have had to pay taxes on today to 10 years from now.”
Paying for Top Talent
Most major companies hire an independent consultant to determine their executives’ and directors’ compensation based on compensation information from companies across the U.S. of similar size and makeup. Pay for performance, especially in tough economic times, is also becoming more important.
“The bottom line is, most shareholders don’t mind if you’re making money if they’re making money,” Watanabe says.
Depending on the company’s position and profitability, its compensation committee will determine executive pay. Most times, committee members try to set compensation in the 50th percentile of where other companies of their size and earnings are, Watanabe says.
“I think Hawaii boards are paid less (than Mainland boards) but, often times, it’s because they’re smaller,” Watanabe says. “But that shouldn’t be the only indicator, because we tend to have more publicly traded companies that are more complicated, partly because we have a small market.”
He says some boards pay more depending on the risk involved in becoming a board member, the complexity of the company, how much time is required and the board’s level of talent.
“You want to be sure compensation is competitive. If not, people will leave and we won’t get the most qualified people,” Watanabe says. “Is the pay adequate? You betcha. It’s hard to look at a person who’s getting paid $100,000 or $200,000 and say, ‘Gee, poor thing.’ But if you look at it on a broad scale, they’re probably slightly undercompensated compared to national standards.”
Watanabe, who is a self-described professional board member, says that at one point in his career, more than half of his total income came from board service. He is currently on the board of two publicly traded companies, five private companies and three nonprofits. He is not paid for the nonprofit service.
Finding the right people to serve on the boards of big companies isn’t as easy as it may seem, say Dods and Watanabe. And, because of the risks involved, they say, there are many reasons not to join boards.
Speaking from decades of experience, here are some of the qualities and traits two of Hawaii’s most prominent board chairs say they look for in a director:
Experience as CEOs
Strong communication skills
“Unfortunately, the company that puts a person on a board for the first time is taking the biggest risk,” Watanabe explains. “That’s why a lot of times there tends to be the same people on different boards – because they’re known quantities and known qualities.”
Companies also look for people who are “collegial” – that is, they can disagree without being disagreeable, Watanabe says.
Dods’ advice for people who want to get noticed: Do good work on public-service boards because corporate boards are not necessarily a place for training.
In Hawaii, most people don’t apply to sit on boards for major companies; they’re invited. “But the real way to get younger people involved and revitalize the business community also has to do with the old guys making room for the younger guys,” Watanabe says.
“People on top need to move and make room for transition. That’s what leaders do. Then the young ones can show initiative and step up.”
More Than One or Two Boards
For some executives, serving on corporate and nonprofit boards is like having a part-time job. Many don’t just serve on one board. Here are three executives who are heavily invested in the community, their corporate and nonprofit affiliations, and the time they spend each month on board-related activities.
• Christine Camp, director, Central Pacific Financial, Child and Family Service, Hawaii Opera Theatre, Diamond Head Theatre, Kapolei Chamber of Commerce: 10 to 20 hours a month.
“I am very mindful not to over commit to outside board activities that would take too much time, focus and resources away from my core business operation, as I have a responsibility to my clients, investors and employees,” she says. Her board service also allows her to develop relationships with other professionals whom she might not otherwise meet, and to stay current on key issues.
• Barry Taniguchi, director, Hawaiian Electric Industries, Hawaiian Electric Co., American Savings Bank, Hawaii Employers Mutual Insurance Corp., Chamber of Commerce of Hawaii, Crown Prince Akihito Scholarship Fund, Hawaii Island Economic Development Board, The Food Basket Inc. (Hawaii Island Food Bank), Hawaii Community Foundation, Hilo Boarding School, Hilo High School Foundation, Lyman House Memorial Museum, Mauna Kea Management Board, Pacific Tsunami Museum, Public Schools of Hawaii Foundation, Tax Foundation of Hawaii, Waiakea High School Foundation.
“I really can’t tell you how many hours, but it takes up at least 30 percent of my time,” Taniguchi says. Most days, he works 10 to 12 hours, or more.
• Shelley Thompson, director, Hawaii Theatre Center, Hawaiian Humane Society, University of San Diego, Child and Family Service. Anywhere from 12 to 80-plus hours a month attending committee meetings, following up on action items, soliciting donations, selling sponsorships, and attending as many events as possible, including weekend activities.
Jeff Watanabe says because board service for publicly traded companies has become so demanding and consumes so much time, there are now unspoken limits on the number of boards on which individuals can sit.
“For instance, for a CEO of a public company, best practices say that person should not sit on more than two other boards.”
There is also debate on whether directors should have term limits.
“While it sounds real noble to keep turning over the board, you lose a lot of institutional knowledge that can be helpful to a company,” Walter A. Dods Jr. says. Instead, he believes directors should be evaluated every year to ensure they are performing.
Watanabe says that, while most boards have some sort of review process, he’d like to see it taken one step further by having mandatory peer reviews.
Chairman of the Board
On big corporations, the chairman of the board is the main liaison between management and the board of directors, and is the point person facilitating communication. Some companies will have an outside chairman and others will have a chairman who is also the CEO, in which case, the board will normally elect a lead director.
“Some believe the job of the chairman of the board and CEO should be split, but it depends on the executive’s experience level, and every company is different,” Walter A. Dods Jr. says. “I’ve seen the model work successfully both ways.”
Jeff Watanabe thinks it’s better to separate the CEO’s and chairman’s responsibilities because that limits one person’s power.
The chairman also leads the board in determining the company’s direction. “Management will make recommendations, but the board of directors has the ultimate responsibility to approve policy, direction and provide the oversight,” Dods says. Another major responsibility of the board is succession planning, especially for the CEO.
HEI, Kamehameha Schools
HEI, Hawaii Community Foundation
HEI, Hawaii Community Foundation
A&B, BOH, president of Kamehameha
Walter A. Dods Jr.
A&B, Hawaiian Telcom, FHB
Bert T. Kobayashi
Hawaiian Air, FHB
Hawaiian Air, Central Pacific
Robert W. Wo Jr.
Central Pacific, Child & Family Service
Central Pacific, Hawaii Community Foundation
Hawaiian Telcom, Hawaii Community Foundation
Dee Jay Mailer
FHB, Kamehameha Schools
HMSA, Hawaii Community Foundation
HMSA, Child and Family Service
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