Earlier, I wrote a blog post speaking about how there was a definite shift towards keeping tab on level of CEO compensation in comparison (relative to) with what is earned by other employees by providing an indication of how it compared to the median salary of the employees within an organization.
The question is how does this median get calculated. Will it include Gross compensation or some other combination. Last week there was an article on how CEO's have earned big salaries and this appeared in a USA Today article.
As per the USA Today write up there were 2 CEO's who took home over a Billion USD in 2012 and a 2 others who were pegged upward of a quarter Billion USD.
While this amount includes both base salary paid to CEO's along with gains made from sale of stock vested in previous year and sold by the CEO, is that the figure that would be comparable in the SEC (US) scheme of keeping tab on how much CEO was being paid as indicated in the link here.
In my view a clear guideline needs to be provided how to compute the salary data for apple to apple comparison of organizations relative standing on CEO pay vis a vis company median. And since median is sensitive to extremes to a lesser extent than mean the median is surely is a good robust metric to use. However what needs to be more clear is what components go into the computation of the pay that will be used for comparison.
I feel that both base salary and bonuses along with stock sold is a good indicator. Stock options are compensation at risk but do for component of the overall salary earned by the CEO. Not including it would be detrimental to getting a link between company performance and CEO compensation. Care needs to be taken to separate the ownership funds (via stocks) brought in by the promoters and payouts made to CEO's who may not be investor owners (upfront). In such case only stock's sold need not be included in the earning. Also dividends accumulated should be part of salary only if the same accrued from shares that were vested due to being employed and not being earned by stock ownership as a primary investor owner.
Nevertheless this proposed change will also lead to a lot interest in studies on company performance versus number of times CEO pay is above the median salary of organizations. This will also be an opportunity to compare the data for companies within an industry as well as across industries.
You may also read
Keeping Tab of Executive Pay
The question is how does this median get calculated. Will it include Gross compensation or some other combination. Last week there was an article on how CEO's have earned big salaries and this appeared in a USA Today article.
As per the USA Today write up there were 2 CEO's who took home over a Billion USD in 2012 and a 2 others who were pegged upward of a quarter Billion USD.
While this amount includes both base salary paid to CEO's along with gains made from sale of stock vested in previous year and sold by the CEO, is that the figure that would be comparable in the SEC (US) scheme of keeping tab on how much CEO was being paid as indicated in the link here.
In my view a clear guideline needs to be provided how to compute the salary data for apple to apple comparison of organizations relative standing on CEO pay vis a vis company median. And since median is sensitive to extremes to a lesser extent than mean the median is surely is a good robust metric to use. However what needs to be more clear is what components go into the computation of the pay that will be used for comparison.
I feel that both base salary and bonuses along with stock sold is a good indicator. Stock options are compensation at risk but do for component of the overall salary earned by the CEO. Not including it would be detrimental to getting a link between company performance and CEO compensation. Care needs to be taken to separate the ownership funds (via stocks) brought in by the promoters and payouts made to CEO's who may not be investor owners (upfront). In such case only stock's sold need not be included in the earning. Also dividends accumulated should be part of salary only if the same accrued from shares that were vested due to being employed and not being earned by stock ownership as a primary investor owner.
Nevertheless this proposed change will also lead to a lot interest in studies on company performance versus number of times CEO pay is above the median salary of organizations. This will also be an opportunity to compare the data for companies within an industry as well as across industries.
You may also read
Keeping Tab of Executive Pay
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