Photo: Patrick Gage via Flickr
As large institutional investors get involved, executive pay and how it is presented have become a strategic dilemma.
Companies have to balance the desire to keep and reward top talent with the public reaction to perceived excess. That tension increases in times of economic difficulty, as we are currently seeing in Britain.
They’ve begun to test a strategic response. The Wall Street Journal reports that more and more companies are providing figures for “realised” or “realizable” pay in proxy statements. 228 companies did it this year, versus only 119 last year, and 83 in 2010.
“Realizable” or “realised” pay attempts to show what executives actually did or could have received in a given year.
These numbers provide a number that’s significantly lower than that reported to the SEC, as they remove stock grants that can’t be exercised for years.
For example, Hewlett Packard reported that its CFO received $2.8 million in realised pay last year, versus the $11 million reported to the SEC.
The issue is that the numbers aren’t standardized, making them difficult to compare across companies. The potential value is that it could give an idea of how much pay is dependent on performance and how much is guaranteed.
That’s an important topic in corporate governance. Short term incentives can encourage fraud, and longer ones make executive pay dependent on returning shareholder value.
However, until its standardized, it’s difficult to know whether it’s an accurate picture, or just a way to flash a much lower pay figure.
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