Media sows more CEO pay confusion

By Dominic Jones

PITY average Americans trying to keep track of what the CEOs of public companies earned last year. Chances are that the pay figures they see reported in their morning newspaper are different than the numbers firms are reporting.

It wasn’t supposed to be like this. The U.S. Securities and Exchange Commission’s (SEC) new rules for executive pay were supposed to make things clearer. Investors were supposed to be able to get a single pay figure they could rely on.

But that hasn’t happened. Far from it. Not only are pay reports difficult to read despite rules requiring plain English, but there’s an argument over which numbers should be used.

Take the Associated Press (AP), the most widely read news service in America, as an example. It has decided it’s not using the total compensation figures the SEC requires companies to report in their summary pay tables.

Consequently, what AP is reporting in its stories to hundreds of mainstream news outlets around the country differs sharply from what investors are reading in SEC filings. The figures may be higher or lower, and it’s not exactly clear why, as I’ll explain in a moment.

First, here are examples of AP amounts for CEOs compared to the totals companies reported to the SEC in their summary compensation tables. In all but two of these examples, which I just pulled at random from the last few days’ AP reports, the news agency reported lower numbers than companies reported in their proxy statements:

EMC CEO Joseph M. Tucci (click on links to view source articles/SEC filings)
AP: $2.53 million
Proxy: $20.21 million

Intel CEO Paul S. Otellini
AP: $6.18 million
Proxy: $9.8 million

El Paso Corp CEO Douglas L. Foshee
AP: $5.2 million
Proxy: $5.9 million

Bear Stearns CEO James E. Cayne
AP: $38.1 million
Proxy: $6.2 million

Plum Creek CEO Rick R. Holley
AP: $3.5 million
Proxy: $4.6 million

Stanley Works CEO John F. Lundgren
AP: $5.6 million
Proxy: $6.2 million

UAL Corp Glenn Tilton
AP: $39.7 million
Proxy: $23.8 million

How did they do that?

Now, like many investors, you might be wondering how the AP is doing its math. But you may have to keep wondering because it’s not clear to me what they’re doing. That’s because I’ve seen two slightly different explanations in AP articles.

Here’s the first:

“The Associated Press’ calculations of total pay include executives’ salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. They may vary from the totals that companies report with the SEC.”

And here’s an expanded explanation of what AP is including and excluding from its sums. See the italicized last sentence:

“The Associated Press’ calculations of total pay include executives’ salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. The calculations do not include changes in the present value of pension benefits.”

I spent over 30 minutes trying to reconcile the AP’s figures for UAL Corp. I couldn’t work out what numbers they added to get their total of $39.7 million versus the SEC version of $23.8 million.

Mind you, it was at the end of a long day at the office and my brain was frazzled. Just like most folk trying to earn a living who don’t need the extra headache of trying to work out just how bad the story is.

This entire situation is a mess, a shame and, as the British love to say, one giant cock-up for investors.

I’m not taking sides here. I’m not qualified to say whose formula is the better one. But I am qualified to realize that having two sets of figures isn’t helpful. It breeds distrust. It makes something that is already discombobulating worse.

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