Paullee: Reviewing a corporation’s reported Executive Compensation can be complicated as it can be made up of various types of compensation and the reported amounts are often based on projections and specified criteria.
I assume your 13% “salary” increase was based on a comparison of the total amounts reported for Merritt on the Summary Compensation Table (Page 39) of $3,009,287 for 2018 , and $3,416,967 for 2019. In fact, his “salary” is only a small part of the reported compensation. As reported “Mr. Merritt’s base salary increased by 4.5% effective April 1, 2019” from $660,000 in2018 to $690,000 in 2019.
Merritt’s reported executive compensation for 2019 is made up primarily of various stock related grants rather than cash salary with the $3,416,967 consisting of the following:
Salary 681,346
Stock Awards 1,083,383
Options 1,083,383
Non-Equity Incentive Plan Compensation 555,450
Other 13,406
Total 3,416,967
As noted. stock awards and options represent the majority of the reported compensation; however, the amounts are computed amounts for accounting and reporting purposes, not actual payments. the following is one explanation as explained by footnotes to the reported amounts:
“Grant date fair value of RSU awards is determined in accordance with FASB ASC Topic 718. The TRSU awards granted in 2019 are scheduled to vest in full on March 15, 2022. Amounts reported for performance-based RSUs are based upon the probable outcome of the performance conditions, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. As of the date of grant, the probable outcome of the performance conditions for the 2019 LTCP did not meet the threshold for recording compensation cost, and, as a result, the grant date value of the performance-based RSU awards was $0. Accordingly, there is no value reported for the performance-based RSUs granted in 2019. Amounts reported also reflect the value at the grant date of the stock options granted in 2019 as determined in accordance with FASB ASC Topic 718. The weighted-average assumptions underlying the above valuation of the stock options for Mr. Merritt and Mr. Öistämo under the Black-Scholes option pricing model are as follows: expected life of 4.5 years; volatility of 25.8%; a risk-free interest rate of 2.4%; and a dividend yield of 2.0%. “
To illustrate, in 2019 Merritt received options for 79,192 shares with an exercise price of $67.61, expiring on 3/15/26. Right now they have no value, but with a relatively long term expiration date, using the Black-Scholes option model a current value was computed for accounting and reporting purposes.
Another example of the problem in reviewing executive compensation are the following comments in the proxy statement where they compare what they call “Target Compensation” against “Actual Compensation”
"Based on the company’s performance in 2019, compared to the target value, the CEO’s actual compensation for 2019 was just 39% of his target opportunity. For this purpose, realized compensation includes base pay, annual incentive, value of RSUs vested, value of PSUs vested and value of options vested."
"$3,880,000 Target Compensation represents 2019 base salary, 2019 target annual incentive, and grant date target value of equity granted pursuant to 2017 LTCP, which vested in March 2020.
$1,506,000 Actual Compensation represents 2019 base salary, 2019 actual annual incentive, paid in February 2020, and the value realized upon vesting of the 2017 LTCP time-based RSU awards and performance-based RSUs based on the performance achieved, which vested in March 2020."
Not much else to do during the sStay at Home days.
