Sunday was a banner day for executive compensation. Make that a banner headline day. The business section of the Sunday New York Times was largely devoted to articles decryingreporting on executive compensation, including reporter Eric Dash’s long, splashy article on executive exit compensation. Now they’ve assembled an online version of the special section with over two dozen pieces on executive comp.
So what’s inspired all this? Well, for that we turn to a Wall Street Journaleditorial from a few weeks ago which explained that the SEC’s new disclosure rules for compensation have brought us far more information, inviting exactly this kind of media attention. Unfortunately, the rules produce information which is somewhat misleading, a fact that the New York Times notes, although it doesn’t let this get in the way of reporting the scandal that executives get paid a lot! The most important thing the Journal editorial notes is that the new disclosure rules are particularly bad at revealing whether executive's are getting paid for performance.
Proxy season is under way, and as companies file their annual reports we can expect a spate of "analysis" stories purporting to tell us just how much America's top executives are making. These stories will also purport to demonstrate that there is no pay for performance at the top of publicly traded companies by comparing stock appreciation with the pay as disclosed under a new SEC rule.
These stories will be wrong. This is so for the simple reason that the SEC's new standard is not designed to measure pay-for-performance.
Caveats aside, the niftiest function of the special section tries to address the very question that the Journal warns us about: executive pay for performance. Interestingly, however, it seems to undermine the hypothesis that executive pay is a scandal. It’s an interactive graphic that allows readers to compare company performance to executive pay along a couple of different axes. What’s clear from the graph is that, for the most part, improvements in executive pay seem pretty well correlated with company performance. (But keep in mind that measuring CEO performance over just one year is not necessarily fair or reflective of shareholder interests). Go ahead and play yourself!
Executive Pay [New York Times Special Section]