Corporate Governance Positions: Executive Compensation:  

Executive Compensation Valuations

 

Performance Metrics

Position: Companies should disclose the general formulas and performance metrics used to determine executive pay.

Rationale: Increasingly companies are using performance-based metrics to determine executive pay. Disclosure of these metrics will enable investors to decide whether they believe the incentives will lead to improved performance.

Where stated: CFA CTR - SEC Exec Comp 2006 (PDF)

 

Valuation and Reporting of Stock Option Grants

Position: Companies should report the full grant-date fair value of stock option grants as part of the annual compensation/remuneration of their senior executives using the same formulas used to value stock options for financial statement reporting purposes.

Rationale: Use of the same valuation methods in both compensation/remuneration disclosures and financial statement reporting ensures that the amounts reported are consistent. Reporting the full grant-date fair value of the stock option grant in the summary compensation table will ensure that investors are aware of the long-term potential dilutive effects of the current year’s stock option awards.

Where stated: CFA CTR - SEC Exec Comp 2006 (PDF)

 

Valuation of Out-of-the-Money Stock Option

Position: Companies should value out-of-the-money stock option grants and stock appreciation rights.

Rationale: While options or rights may be out-of-the-money at the date of grant, they still have value for the executive and create liabilities for the company which should be disclosed to investors.

Where stated: CFA CTR - SEC Exec Comp 2006 (PDF)

 

Valuation of Perquisites

Position: Companies should base the value of perquisites involving company assets used by senior executives for personal reasons on the pro-rata portion of the personal use of that asset compared to its total annual cost.

Rationale: Pro-rating the cost of the personal use of an asset is a more accurate reflection of the estimated benefits to the executives and costs to the company. For example, if an executive’s personal use of a company plane accounts for 5% of the annual use, the value assigned to the perquisite should amount to 5% of the annual cost of operating the aircraft.

Where stated: CFA CTR - SEC Exec Comp 2006 (PDF)