the Insiders


March 30, 2012 2:09 PM


How to Read Your Boss' Paycheck

For even small shareholders, executive compensation is a big issue -- no matter how much a company's leaders talk about doing right by investors and employees, it matters how the top dogs are motivated and paid....

For even small shareholders, executive compensation is a big issue -- no matter how much a company's leaders talk about doing right by investors and employees, it matters how the top dogs are motivated and paid. For the rest of us, the annual proxy statements that reveal just how much public companies pay, or overpay, their top executives is one of the really, supremely great opportunities to ogle and chuckle and ultimately shake our heads at how out of whack the world of money is.

To aid in this payday snooping, which of course is fully sanctioned by the Securities and Exchange Commission, I submit this guide to reading your boss's paycheck. We cover the biggies, but there's lots more to know if you're interested. This guide only works if you're at a publicly held company. Otherwise, you'll have to rely on the time-tested, if less exact, method of checking up on what kind of car your boss drives and where they live.

Step 1: Go to this SEC Web site,, and put in the name of your company.

Step 2: Click on the document button for the definitive proxy filing, which goes by the name DEF 14A. The first item should be described as DEF 14A or the definitive proxy statement. Click on the link. Proxies come out once a year and include information relating to the company's upcoming annual meeting. We're in the midst of proxy season now, though some companies are on a different calendar, which will have them lifting the kimono at another time of year.

Step 3: Find the Summary Compensation Table, which is often listed in the index.

Step 4: Gawk.

There will be lots of jaw-dropping stuff, but know what you're looking at.

The "salary" category reflects, well, salary.

"Bonus" is somewhat misleading and often shows nothing. This category isn't for rewards relating to performance but for things like a signing bonus.

The dollar figures reported in "stock awards" and "option awards" can also be misleading. Your boss might not ever see that money, given changes in the company's stock price and when the options roll out.

"Non-equity incentive plan compensation," that's the real cash performance bonus. There is also information describing changes in pension value.

Finally, and not to be overlooked, there is a category devoted to "all other compensation."

Look at the footnote. Companies each have their own way of describing other compensation, but this is where you'll see the costs of a dedicated car and driver, a health club membership, private trips on company aircraft, security details and so on.

The proxy doesn't warn you to not go blabbing all over the office about how often the ceo uses the jet for family vacations, so I will. Don't. Just look at the numbers -- though you'd probably be better off if you didn't -- be amazed for a while and get on with life.

The proxy also doesn't tell you that what these executives make is not necessarily what they're worth. A few are probably underpaid. Many are overpaid, having spent years failing upward, moving on before it became clear that they're not very good at their jobs but good at seeming like they're good at their jobs.

Executives get what the market will bear. There are only so many people who are seen as being able to run a gigantic retailer or a big fashion house, and so when it comes time to negotiate a pay package, companies pay up.
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