THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, June 16, 1996 TAG: 9606150424
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 115 lines
For years, USAA has won plaudits for the low cost and high quality of its financial services.
Its homeowners' insurance policies have been highly rated, and the San Antonio-based organization has been cited as one of the 100 best U.S. companies for which to work.
But USAA, an acronym for United Services Automobile Association, attracted some unwanted attention two weeks ago. The organization, which provides insurance to military officers, retired officers and their dependents, was in the news because of the compensation paid to its directors.
When President Clinton nominated Adm. Jay L. Johnson to be Chief of Naval Operations, the chairman of the Senate Armed Services Committee expressed concern about Johnson and other senior officers serving as paid members of USAA's board.
The armed services committee ``should examine every aspect of this situation, including the Department of Defense's approval of this practice,'' the committee's chairman, Sen. Strom Thurmond of South Carolina, said in a statement.
Thurmond's interest in the USAA board comes at a time of increased scrutiny of directors' compensation and responsibilities throughout corporate America.
The National Association of Corporate Directors, a Washington-based organization that advises directors, formed a 32-member commission last month to study the responsibilities of directors. The commission, whose members include the retired chief executives of Texaco Inc., BankAmerica Corp., and Dow Chemical Co., will report on its findings in November.
At scores of major companies, boards of directors have exerted much more control in recent years. At IBM Corp., General Motors Corp., American Express Co. and Eastman Kodak Co., the boards have jettisoned CEOs for failing to turn around faltering operations.
``Today, directors are being held under the spotlight, and they don't want to see their own reputations besmirched,'' said John M. Nash, president and CEO of the National Association of Corporate Directors.
To attract a higher caliber of directors, some companies have been increasing their compensation to board members. In a recent survey of 800 large companies, the executive search firm Korn/Ferry International found that the average compensation for corporate directors last year was $33,314.
``What are they doing to deserve that? The short answer is that there's more pressure on boards to perform,'' said Leonard Pfeiffer, a Korn/Ferry partner in Washington who conducts searches for corporate boards.
Large corporations typically pay their directors an annual retainer, along with a fee for each board and committee meeting they attend during the year. Some also provide stock options and retirement programs.
Some companies have enriched their compensation packages with stock options, travel expenses and even pensions. But while the dollar value of these packages has been rising, the emphasis has been shifting away from cash.
In an effort to strengthen their directors' ties to the company, more boards have made available to them stock options and stock-purchase plans. USAA declined to describe the mix of compensation paid to Johnson, who reportedly received $33,400 in director's fees from USAA last year.
Johnson, a Naval Academy graduate who joined USAA's board in 1991, resigned from the board June 6.
Like their counterparts on corporate boards, USAA's directors are responsible for monitoring the organization's management and setting its policies.
``The board of directors of a corporation is responsible to its shareholders,'' Hal Schade, a USAA spokesman, said. ``In our case, the board is responsible to the members, who are the owners. Directors have stewardship of members' assets and their financial security.''
Established in 1922 to provide auto insurance for a small group of Army officers, USAA has grown to 1.5 million members, including 95 percent of the country's active-duty military officers. The organization has another 1.9 million associate members, mostly dependents of USAA members.
USAA has quietly become a financial powerhouse, with credit-card operations, a life-insurance company, and a family of 33 mutual funds with combined deposits of more than than $17 billion.
One measure of the organization's financial heft is its place on Fortune magazine's annual ranking of the 500 largest companies in the country. With $6.61 billion of revenues in 1995, USAA was No. 200 on the latest list.
To handle the growth in members and services, USAA has built a network of regional offices, including one in Norfolk to serve its mid-Atlantic region.
Having active-duty officers like Johnson on its board has been valuable to USAA. It provides a much better understanding of the needs of active-duty members, Schade said. However, USAA will respect whatever rules the Defense Department makes about officers serving on outside boards, Schade said.
Once known as little more than old-boy networks, corporate boards have become increasingly selective. In some cases, companies hire executive recruiting firms to find candidates who can bring expertise to the board.
``One of the hottest areas for directors involves those with international backgrounds,'' said Nash of the National Association of Corporate Directors. ``If your company is trying to do business in Germany or England or Asia, wouldn't it be great to have a director familiar with those markets?''
``The chief executive officer has to have input in the selection of directors, but he's no longer picking his own people,'' Nash said. ILLUSTRATION: Color photo
Adm. Jay L. Johnson serves as a paid member of USAA's board.
Graphic by John Corbitt/The Virginian-Pilot
Hefty Fees for Board Service
[lists company, annual retainer, board, committee meeting fees and
number of outside directors.]
For copy of graphic, see microfilm
KEYWORDS: USAA DIRECTOR COPRORATE DIRECTORS by CNB