Why AP's proxy stories use different compensation figures

Associated Press business columnist Rachel Beck goes a long way Friday in explaining why the wire service has been using numbers when writing about executive compensation that differ greatly than the “total compensation” figures reported by companies in their proxy statements.

Beck’s column isn’t written for the purpose of explaining why the numbers in AP stories are different than those in the proxies. But I’m posting parts of her column because of an earlier post from IRWebReport’s Dominic Jones, who noted the confusion being caused by the difference, and because of a conversation I heard earlier in the week between the AP business writer in Cleveland and the business editor of the Plain Dealer about the differences in the numbers.

Beck wrote, “The numbers presented are hardly the real deal.

“That’s because total pay is calculated using accounting rules that can greatly sway – and at times downplay – the true size of the pay for the nation’s corporate leaders.

“The result makes it hard to have faith in what’s being reported, especially those showing CEOs taking big pay cuts – or in some cases even negative numbers.”

Later, she added, “Instead of companies using the fair value of the stock options and awards granted to executives in the last fiscal year as the basis for the stock compensation figure on the summary table, the SEC instead directed them to use a figure that reflected the cost of options and awards that vested during the fiscal year.

“The SEC made such changes so that only options actually earned in a given year are accounted for, and that would then match the option expense being deducted from earnings. Critics, however, say the move could lower costs by spreading them out over several years, and stock grants from previous years could be included in total compensation for a given year.”

Read more here.