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For the methodology used by AP as reported in the article below, see


Investor Relations Magazine, April 20, 2007 article



Major wire service has its own figures for 'total pay'

Apr 19, 2007

AP drops SEC's formulation of exec comp in favor of its own

NEW YORK -- With CEO pay making the headlines, IROs may wish to know that the Associated Press (AP) is using its own formula for calculating total pay from a proxy statement, not the SEC's.

It is a curiosity picked up by Kirkland & Ellis partner Robert Hayward, who noticed the difference after reading news stories about proxy statements he helped prepare. He has issued a client alert on the matter.

'The running assumption was that everyone would go in and take the new total compensation number [from the SEC filing] and stick that in the headline,' he says. 'AP was not picking out that number so I got in contact and had them explain it.'

The discrepancy comes from AP using different figures for pension earnings and stock and option values than those reported in the SEC's summary compensation table. Specifically, for pensions the wire service is ignoring the actuarial change in pension value. For stock and options, the AP is using the FAS 123R grant date fair value of the stock and option awards (reported elsewhere in the proxy) and not the financial accounting compensation expense called for in the summary table.

The AP formulation, which is turning up in news stories in Yahoo Finance, the Wall Street Journal and local papers, is not necessarily a bad thing. 'I think it's better than the SEC's total compensation number for purposes of trying to disclose what the executive was offered for the year,' Hayward says.

Indeed, it more closely captures what the SEC was going for in its original disclosure rules before a last-minute change in December. That change asked companies to report the financial accounting compensation expense recognized for all outstanding stock and option awards, not just awards granted in the prior year. It is controversial because it could lead to misrepresenting the true total compensation an executive was awarded in the most recent fiscal year.

While there is no real right or wrong here, IROs need to know this is happening. 'The rules are extremely complex,' says Hayward. 'There is no easy way to make the disclosure into sound bites.

'The SEC may need to do a top to bottom review after this proxy season and tweak the rules to make the total compensation number more reflective of what compensation committees decide in the given year,' he adds.

by Anna Snider


© copyright 2007 Cross Border Ltd




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