THE WALL STREET
JOURNAL | September 24, 2012, 7:41 p.m. ET
Executive Pay Gets
A growing number of
companies are producing alternative measures of their top executives' pay,
seeking to persuade investors that compensation isn't as high as the
government's yardstick implies.
General Electric Co.,
example, disclosed in its annual proxy that Chief Executive
Jeffrey Immelt had taxable income last year of $7.82 million, as shown
on his W-2 form, far less than the $21.6 million it reported in the
standardized summary compensation table required by regulators. The
difference between the two numbers was largely the value of equity grants
and the change in the value of his pension.
At least 228 companies
mentioned "realizable" or "realized" pay in their proxies or proxy
supplements this year, according to an analysis by The Wall Street
Journal. That's up sharply from 119 in 2011, 83 in 2010 and just 68 in
2009. Compensation experts expect more companies to jump on the bandwagon
The measures try to capture
what the executives pocketed—or could have pocketed—in a given year.
Realized pay, for example, often includes stock that vested and the value
of any options that were exercised during the year.
Realizable compensation may
include old stock or option grants that have vested but haven't been
But the definitions of these
measures can vary from company to company, limiting investors' ability to
compare them and raising concerns that some companies are merely trying to
highlight lower pay numbers.
And because the new measures
are voluntary, companies are free to change them from year to year or stop
producing them altogether.
GE has tinkered with
supplementary figures it provides in each of the past three years. GE
spokesman Seth Martin said the company chose W-2 income this year because
the figures are "readily understood by U.S. investors."
The disclosures offer an
alternative to the summary compensation table required by the Securities
and Exchange Commission. Companies complain the table can greatly
overstate an executive's compensation because it includes the value of
unvested grants of stock and stock options.
The increase in supplemental
pay information comes as companies face annual shareholder advisory votes
on executive compensation. The results of these "say on pay" votes
typically hinge on how well pay correlates with corporate performance and
Some companies think it is
more useful to base that comparison on what an executive actually takes
home, rather than stock-related grants that can't be realized for years,
if at all.
"There's a big disconnect
between actual shareholder results and the pay opportunity that executives
may never realize," said James D.C. Barrall, head of the global executive
compensation and benefits practice at law firm Latham & Watkins LLP in Los
In many instances, companies
offer the additional information following a poor showing in say-on-pay
votes or after a proxy adviser has recommended a "no" vote on their
Exxon Mobil Corp. received
a negative recommendation from proxy adviser Institutional Shareholder
Services and got just 67% shareholder support for its
The oil giant
published "realized pay" figures for CEO
Rex Tillerson for the first time this year, showing he received $24.6
million in 2011, compared with the $34.9 million it reported in the
summary compensation table.
Exxon's realized pay
calculation excludes unvested stock grants, deferred compensation, changes
in pension value and other amounts that Mr. Tillerson won't receive until
some future date.
"A significant portion of
the CEO's compensation is deferred, at risk of forfeiture, and dependent
on future performance of the company," Exxon Mobil wrote in a proxy
The company, which made
other efforts to explain its pay practices to investors, got nearly 78%
support for its executive-compensation plans in 2012, despite another
Hewlett-Packard Co., the
biggest U.S. company to fail a say-on-pay vote in 2011, disclosed realized
pay for its continuing executives this year.
The computer maker said in
its proxy that Chief Financial Officer Catherine Lesjak had realized pay
of $2.8 million in 2011, down from the $11 million it reported in the
summary table. The company received 77% support for its compensation plans
H-P declined to comment
beyond its proxy filing.
In rare instances, an
executive's take-home pay may be higher than the number reported in the
summary table. For example, Ms. Lesjak had realized pay of $10.1 million
in 2010, more than the $8.1 million disclosed in the summary table. The
difference was largely the vesting of previously granted option and stock
Glenn Booraem, head of
governance at investment manager Vanguard Group, said the additional
information "helps us understand the context for how responsive payouts
have been to performance." He said Vanguard, which oversees about $2
trillion in assets, just started using realizable pay, in addition to the
summary compensation tables, which he says are still a useful measure "of
the board's intent."
The chief concern among
investors is that the various new measures can't be used to make
comparisons between companies.
Moreover, many companies say
their compensation committees consider realized or realizable compensation
in setting pay, but don't provide any numbers. Others show figures that
approximate what's on an executive's W-2, but those may not include
pension gains or newly vested options.
Because the disclosures
aren't standardized, they are "not necessarily something you can fully
work in," said Edward Durkin, director of the corporate affairs department
of the United Brotherhood of Carpenters pension fund. He said the fund has
been calculating its own realized pay figures at some companies for years.
There are some efforts to
standardize the disclosures. Proxy-advisory firm Glass Lewis said it would
begin incorporating realizable pay figures from compensation-data provider
Equilar Inc. into its analyses, and rival adviser ISS asked its investor
clients whether it should consider realizable or realized pay in its
annual policy survey.
The Dodd-Frank financial law
requires the SEC to come up with rules for companies to disclose
information about "executive compensation actually paid" and how that is
linked to performance.
But the regulator hasn't yet
defined the term "actually paid" and how it should be linked to
performance. An SEC spokesman said the rule is pending.
to Emily Chasan at
Copyright ©2012 Dow Jones & Company, Inc. All Rights Reserved