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DIY pay for AutoZone directors …

A corporate board of directors, like the U.S. Congress, is in the unusual position of voting on its own pay. Of course, in both cases, it amounts to spending other people’s money, so we tend to take a close look when a board appears to be handing itself a hefty pay-raise.

A quick read of the proxy auto-parts chain AutoZone (AZO) filed on Monday suggests that’s what the directors of AutoZone (AZO) are doing — though in the end, it may be a little murkier than that. Until now, AutoZone directors have toiled for a cash retainer of $40,000 plus a sizable stock-option grant and smaller stock awards that together brought each board member’s total pay to somewhere between $184,815 a year and $209,746. (Directors could also choose to take $75,000 in cash and a smaller option grant.) Committee chairs, as is typical, get additional payments of $5,000 a year (or $10,000 for the audit committee).

Then, in a section describing changes effective January 1, the proxy seems to lay out a big increase: a new $200,000 annual retainer — five times the basic cash retainer they’re now receiving — and the audit-committee chair’s additional fee will double to $20,000; audit-committee members, meantime, will start collecting another $5,000. If shareholders approve the new incentive plan that accompanies the proxy, however, that retainer will be paid in restricted stock units, a sort of IOU from the company linked to its stock price; these would pay out on each director’s departure from the board.

That’s where the uncertainty comes in. It’s not immediately clear from the proxy whether this new stock-based retainer replaces the existing cash retainer, or just supplements it. Either way, AutoZone directors are likely to see it as the main course. That may not be a bad thing for investors: By linking their pay so closely to stock performance, and giving them a long holding time, until retirement, it could make sure the directors are careful stewards. (In theory, incentives being what they are, we’d worry about all the directors deciding to retire as the stock peaks, but trying to time the market that closely is a risky bet, especially for insiders.)

In any case, if this is a just a new way to package the stock exposure AutoZone directors get, good deal. Although in the grand scheme of things, $200,000 is still a lot for what remains a part-time job, AutoZone hasn’t been at the high end of the scale, especially for a company of its size. But at the very least, the company should consider being a little clearer when shelling out other people’s money.

Image source: AutoZone website

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