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Experts Disagree on Calculating CEO Benefits

Two compensation experts and the SEC differ significantly in determining how much Walt Disney Co. CEO Robert A. Iger made last year.
Two compensation experts and the SEC differ significantly in determining how much Walt Disney Co. CEO Robert A. Iger made last year. (By Barry Sweet -- Bloomberg News)

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By Nancy Trejos
Washington Post Staff Writer
Sunday, February 8, 2009

Ask the Securities and Exchange Commission what Walt Disney Co. chief executive Robert A. Iger made last year, and you get $30.6 million.

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Now ask Paul Hodgson, a senior research associate for the Corporate Library, and you get a different answer: $21.4 million.

Want another opinion? It's not hard to find one. Here's what Graef Crystal, an expert on executive compensation, came up with: $51.1 million.

Figuring out what and why a company is paying its top executives is no small feat. Although the SEC requires companies to disclose their compensation structures in their annual proxy statements, even some of the nation's leading experts on the topic often disagree on what an executive is actually walking away with in any given year. That's because most companies pay their executives a mixture of salaries, perks, bonuses, stock options and other equity awards that might be paid out in one year or spread out over time.

"As a shareholder, it can be terribly confusing figuring out what the pay is," said Charles G. Tharp, executive vice president for policy at the Center on Executive Compensation.

The financial crisis has made that all the more apparent. Frustrated with executives who walked away with large salaries despite free-falling stock prices and declining company profits, shareholders are proposing changes to their companies' compensation structures. Patrick McGurn, special counsel at RiskMetrics Group, a proxy advisory firm, said he expects the number of shareholder proposals on executive compensation to reach 400 by the time companies have their annual meetings this spring.

Some shareholder activists, ranging from labor unions to church groups, have supported "say on pay," which requires boards of directors to let their shareholders take annual advisory votes on compensation. Other proposals call for shareholder votes on large severance packages and better disclosure of conflicts of interest among compensation consultants that work with a company.

Even President Obama has weighed in on the matter, saying last week that his administration would impose executive compensation restrictions at some firms receiving federal aid.

But any reforms must address one fundamental problem, experts said: Companies don't always make it easy for shareholders to understand what their executives make. Three years ago, the SEC adopted rules that were supposed to make companies' executive compensation structures more transparent. But more transparency has actually bred more confusion, some experts said.

"We've got both a blessing and a curse with the changes that have been made with disclosure," said Timothy J. Bartl, vice president and general counsel at the Center on Executive Compensation. "On the one hand, we have a lot more information about what these programs are, and on the other hand, we have much more information to decipher."

Much of that information is contained in the company's annual proxy statement, which can be found on both the company's and the SEC's Web sites. But just because the information is all there doesn't mean you'll understand what it all means. You'll also need to pull out your calculator. And don't think you can get away with skimming through the proxy. You can miss an awful lot if you ignore, say, the footnotes.

"Particularly large companies in the S&P 500 have some of the most complicated compensation structures you can imagine," Hodgson said.


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