Tuesday, March 20, 2007

How Much is Your CEO Being Paid?

Thanks to new federal regulations, you may still never know. Here’s a classic example:

From the Memphis Business Journal: “UPS' CEO earned $6.2M last year”.

For example, UPS’ CEO Michael Eskew earned the following:

Salary, $988,000; Bonus, 41,500; Stock Awards, 2,800,000; Stock Options, 1,000,000; Non-Equity Incentives, 174,300; Other, 33,137.

This totals to $5,036,937, but the Business Journal reports $6.2 million, and doesn’t identify the $1.2 million difference.

MSN, relying on an AP report: “UPS Chief Receives $4.1M in 2006”.

The AP and Business Journal reports use the same salary, bonus, stock award, non-equity incentives, and other figures. It’s the valuation of the stock options that provides the difference between the two.

The AP report notes that:

“The AP, after consultations with executive pay consulting firms and accounting experts, developed its own formula for interpreting the expanded disclosures U.S. public companies must make starting this year about what they pay their top executives.”

No hint about the methodology is given, so it’s anybody’s guess if their estimate is any better than the Business Journal’s.

Solid evaluation of executive pay, in an era where most top compensation packages include significant payments based on future stock price performance, is not a simple, straightforward task. And that’s assuming that the person doing the evaluation doesn’t have an interest in the issue either way – either biasing the estimate up or down.