Faced with stock that is now sitting well under $1 per share, Eddie Bauer Holdings (NASDAQ: EBHI) announced that it was cutting its board of directors from ten members to seven and also slashing the payments directors receive.

In a press release, the company said that "In addition to reducing the size of the Board, the Board has adopted recommendations of the Compensation Committee to reduce the cash compensation payable to each Board member by approximately 50%, reduce the value of annual equity grants for Board service and defer the 2009 annual equity award for Board service."s

This is good news, but it's long overdue. According to the company's latest proxy statement, directors were paid $65,000 per year in cash in addition to $1,500 per meeting in 2007. But there were also generous stock and option awards that drove the non-employee director compensation well into the six figures. In 2007, Eddie Bauer spent over $2.3 million paying its non-employee directors. And while the stock price was much higher back then, it was still way below its level when the company went public in 2005.

Here's what's so crazy about that: As of today, Eddie Bauer has a market cap of just $21.6 million, meaning that it spent more than 10% of its current market cap paying its non-employee directors to go to a few meetings per year while the company was being driven into the ground.

Reducing the compensation of the board is a start. Replacing its members would be a better move.