Details on Executive Comp Lead to Confusion

By Michelle Leder
June 8, 2007

Now that proxy season is essentially over and the deadline associated with crunching executive pay numbers with it, it's time to go back and assess just how well reporters did with getting the numbers right. After all, this was the first year that such detailed information on executive compensation was available. Even for seasoned proxy readers (and I include myself in that group) the additional information and different presentation meant really digging in and reading lots of footnotes. For those new to proxy reading, the new format likely led to plenty of confusion, especially if a local reporter tried to compare their calculations to those done by the large news-wires.

Just before the start of proxy season, the Associated Press put out a 14-page guide called "Guidelines for Interpreting New Proxy Statements." The very first paragraph included this ominous warning in bold-faced type: "Our totals may differ from what other news organizations report." Indeed, it was not uncommon to see Reuters, Dow Jones, Bloomberg and the AP report markedly different compensation numbers for the same executive.

Companies, of course, were not happy about the results, especially when reporters calculated an executive's pay to be higher than it was. For example, the general counsel for diversified manufacturing company Leggett & Platt sent a stinging letter to the Securities and Exchange Commission in late April complaining that numerous reporters had gotten their compensation numbers wrong. "The AP reporter overstated his (the CEO's) compensation by $1.2 million, or 40%, because he relied exclusively on the information presented in the summary compensation table ... and disregarded information contained in the footnotes to those tables. By the time we saw the article, our local newspaper had posted it online and residents in our small community were already posting outraged comments."

While it's too early to say whether the SEC will make the summary compensation chart easier to read next year, it does make sense to brush up on your proxy-reading skills during the off season. After all, pitchers don't work on perfecting their curveball during the World Series. And reporters shouldn't only look at proxy statements when they're on deadline.