In recent years, companies have begun to voluntarily disclose alternative measures of CEO compensation. These figures differ — sometimes significantly — from those reported in the summary compensation tables of the annual proxy. The motivation to report this information, however, is not entirely clear. A company might disclose adjusted compensation because it believes this measure to be more informative about executive incentives than SEC-designated calculations. Alternatively, it might do so to make its compensation practices and payouts appear more favorable than under SEC rules. We examine this practice in detail, and ask: Are alternative measures of compensation useful in assessing CEO compensation? Does their prevalence indicate shortcomings in SEC standards, or a desire to mislead investors? Are alternative pay calculations beneficial in helping investors understand the relationship between CEO pay and performance?
Copyright held by David F. Larcker, Brian Tayan, and Youfei Xiao. Further inquiries about reproduction and use should be directed to the Corporate Governance Research Initiative.
