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Behind The Numbers

Monday, July 28, 2008

The Washington Post's annual executive compensation survey covers top executives at 117 of the region's largest public companies and is drawn from publicly available data filed with the Securities and Exchange Commission.

The information compiled was sent to the companies to check the accuracy. Most, but not all, companies responded to the inquiries. Errors were corrected and other concerns were discussed with company representatives.

We asked Equilar, an executive compensation research firm in Redwood Shores, Calif., to compile and analyze pay data.

In Equilar's "Total Compensation" analysis, the 100 highest-paid executives are listed in descending order by total pay. That includes salary, bonuses, nonequity incentive plan (NEIP) payouts, option awards, stock awards, annual changes in pension plan balances, earnings on nonqualified deferred compensation and other compensation.

Amounts listed in the bonus column typically include discretionary cash awards that are not tied to performance, like signing bonuses, as well as performance-based awards. Payouts from both annual and multiyear incentive plans are included in this column.

Values listed in the option awards column represent the fair value of new service-based and performance-based option awards on the grant date. When grant-date values were not provided for option awards, Equilar valued them using the widely accepted Black-Scholes methodology. Values listed in the stock awards column also represent the value of new service-based and performance-based stock awards on the date they are granted.

Equilar's analysis counts equity awards in the fiscal year they were granted, regardless of when an executive can access them. In some cases, the ultimate value will depend on future performance or other conditions.

There is no guarantee that executives will actually receive the estimated value of their equity awards. They may realize more or less in compensation depending on the price of the shares when they are sold. In some cases, especially in the financial sector, companies grant equity awards at the beginning of a fiscal year based on performance in the prior fiscal year. As such, they are not necessarily indicative of corporate performance in the year they were granted.

Values listed in the pension column represent the annual growth in an executive's pension plan balances and earnings on nonqualified deferred compensation. Equilar's analysis does not take into account negative values, when pension balances decline from one year to the next. Other compensation typically includes benefits and perquisites such as the personal use of corporate aircraft, financial planning assistance and insurance premiums.

Finally, in Equilar's "Total Cash" analysis, the 100 highest-paid executives are listed in descending order by total cash compensation. Cash compensation includes salary, bonuses and NEIP payouts. The definitions for these values are the same as described above.

Local business editor Dan Beyers and online business editor Andrea Caumont supervised the compensation survey. Washington Business editor Terri Rupar oversaw the story and graphics package, and Business section administrator Sarah Halzack managed data queries. Database managers Ed Holzinger and Jacqueline Dupree provided technical assistance.

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