Executive Compensation Piques Reader Interest

It's not a secret that executives make big bucks, but just how much they bring home might surprise your readers.

Stories that spotlight incomes and perks pique interest because readers can see and compare an executive's pay to their own.

The Washington Post, The Philadelphia Inquirer and The Miami Herald, among others, published their annual executive compensation reports this week. These projects, conducted in-house or through a research company, surveyed top local businesses for information on executive compensation, and then ranked them according to their compensation packages.

"We take a very local approach to tell a broader story," says Terence O'Hara, a Washington Post business editor.

And it's not just what executives are paid. How they are paid is another significant point to pursue. Does most of the compensation come from salary, bonuses or stock options? How does this influence the performance of the executive? And what about perks? Some executives get extras like country club memberships, personal use of jets, car leases, personal financial services and home security systems.

The major problem with compensation reports is quantifying how much executives bring home in options. Since this part of compensation is based on ever-changing stock prices and the need to make certain assumptions, it can be difficult to value the option. Basically, you should determine a consistent and comparable method and analyze each company according to that method. The Washington Post explains the methods they have been using for the past four years here.

Originally at The Washington Post, reporters researched every local company that filed information about executive pay. After that first year, they created a database of top companies and executives.

Each April, employees at The Washington Post go through filings and proxy statements to gather information in five areas of pay: salary, bonus, long-term compensation, the potential value of option grants and all other compensation, according to its "Behind the Numbers" article. They compile these figures and create a ranking based on those results.

After the list has been created, the data is sent to the companies and individuals involved to check for errors and discuss concerns.

"At the very least, we try to make sure it's accurate," O'Hara says.

Most companies are reluctant to discuss the compensation packages of their executives but, as O'Hara points out, "There is no shortage of experts on executive compensation, and there is no shortage of critics."

Reporters Susan Miller of The Miami Heraldand Josh Goldstein of The Philadelphia Inquirer got executives to talk. The comments they published had executives referring to a performance-based pay system. This correlation, as well as executive compensation that is not related to performance, is worth exploring. Judge how the company is performing by looking at its history and stock price and examining financial statements, including the annual report and proxy statements, which explain executive compensation.

This brings us to the importance of perspective in executive pay stories. The large sums associated with compensation may cause jaws to drop, so reporters should do some analysis.

Compare compensation packages to other executives at similar companies and note large changes in the amount or method of compensation over time.

The reporters also featured trends in executive pay. In the wake of corporate scandal, compensation methods are changing. Many companies have reduced the amount or type of stock options available to executives because some suspect it led to deceptive practices by executives to improve their options. Analysts are good sources for comment on this subject as well.

While experts and executives can provide insight and voice for an article, O'Hara says the beauty of these projects is that the numbers speak for themselves.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism