Report of material events (e.g. a new NEO or director, voting results, acquisition, bankruptcy).
The annual statement of the Company, released at the end of the year. The 10-K looks backwards and serves as a summary of financial performance in the previous year.
An alternative approach to pay out an annual bonus—discretionary bonus is a ‘one-time’ bonus that falls outside an annual pay cycle. Annual bonuses are planned out by the compensation committee, with specific metrics in which the executives will be evaluated. Typically, bonus targets are measured as a percentage of an executive’s base salary.
An option valuation equation. Accounts for volatility, underlying stock price, expected life, strike price, risk-free interest rate and dividends.
Financial Accounting Standard Board’s recommended model for option valuation using the Black-Scholes Methodology.
Top governing group of a company. The Board of Directors does not manage daily operations but represents shareholders’ interests, votes on key issues and offers strategic guidelines.
The amount of return an investor realizes on a bond.
Measures how quickly a startup is ‘burning’ through issuable shares approved by investors, allowing companies and shareholders to know how long before the company needs to request more shares to be approved.
An SEC-required disclosure of the ratio between the company’s annual compensation to the CEO and to its median full-time employee. Under the SEC rule, pay may be determined any way that reasonably reflects the annual compensation of employees, but must be consistently applied for the purposes of comparison, and is referred to as the CACM, or Consistently Applied Compensation Measure.
An SEC-required section of a company’s annual proxy statement. In this section, a company lays out their compensation philosophy, and explains to shareholders why they decided to structure their compensation plans in a certain way.
Vesting schedule in which entire award vests at one time.
The process of comparing a Company’s pay practices to peer companies, the purpose of which is to set pay levels at competitive rates. This process strikes a balance between retaining and attracting the best talent available while making sure that shareholders do not view pay packages as excessive.
Experts in the design and implementation of compensation plans, with the goal of creating the proper incentives for employee behavior. Compensation consultants also advise companies on trends in the area of compensation and on the current rates of pay for given job categories. Consultants often use Equilar’s compensation data to make their recommendations. The key difference between a compensation consultant and Equilar is that Equilar is data agnostic and does not make recommendations to issuers.
Companies that issue stock that trades on an exchange.
Annual filing filed with SEC containing corporate strategy and forward-looking information. The Compensation, Discussion & Analysis outlines the decision-making process and justification for executive compensation programs. The Summary Compensation Table outlines the pay of the Top 5 executives in detail.
The process of issuing more shares that reduce the voting power of shares already outstanding.
Giving a portion of a company’s earnings back to shareholders—typically cash payment, can be reinvested into position.
Dow Jones Industrial Average. Tracks 30 large ‘blue-chip’ companies in the NASDAQ or NYSE.
Electronic Data Gathering Assessment/Analytics & Retrieval – the SEC’s public database.
Equilar’s algorithmic Peer Group Generator based on the strength of connections in proxy disclosed peer groups. Equilar’s Market Peer methodology is used to create a 15-company peer group used by investors to evaluate pay and performance.
A blend of both proxy data and survey data. Proxy data only covers NEOs. Survey data covers the Top 25 highest-paid employees. Combining both data sets provides a more accurate picture of the compensation landscape.
The financial compensation and other non-financial awards (e.g. perquisites) received by an executive for his/her service to the organization. Typical components of an executive pay package include cash salary, bonuses or annual short-term incentives paid in cash, long-term incentives in the form of cash or restricted stock/units, restricted stock/units or option awards with time-based vesting provisions, and the value of benefits and perquisites. In most cases, the majority of executive pay is linked to company performance measures as a way of aligning executive and company incentives.
Insider trade reports. Any board member, officer of the Company or shareholder owning 10% or more of the company must disclose a Form 4 when they buy or sell stock. These transactions are made public to avoid insider trading issues.
Vesting schedule in which award incrementally vests over the term of an award.
An incentive award given to an executive as compensation. The grant can be paid out in cash or equity (stock, options).
The value of the award at grant date (on the day it is awarded). Awards typically vest after the grant date, so an executive may have shares granted that he/she cannot actually buy or sell until they vest.
Incentive plans (could be cash, stock, options) tied to multi-year job performance that is evaluated using predetermined metrics. The typical length of a long-term award cycle from grant date to vesting is three to five years. Long-term incentives are traditionally considered a retention vehicle for executives since they require the executive to remain in place and performing for their full award to become vested.
An interest-bearing account at a bank or credit union—not to be confused with a money market mutual fund.
CEO, CFO and the next three highest-paid executives, as disclosed in the Company’s proxy. Typically referred to as the Top 5.
Stock market index of the common stocks and similar securities listed on the NASDAQ stock exchange. Along with the Dow Jones Average and S&P 500, it is one of the three most followed indices in U.S. stock markets.
The world's largest stock exchange by market capitalization of its listed companies at $25 trillion as of 2020.
An option giving the holder, usually an officer or employee, the right to buy stock of the issuing corporation at a certain price within a certain period.
Pay for performance in executive compensation is the philosophy that pay is or should be tied to one or more company performance metrics. This practice provides incentives for an executive to perform against pre-determined goals in order to receive a full payout under the compensation program. In a pay for performance assessment, both compensation and performance can be defined in various ways.
Pay for performance is an important factor in Say on Pay voting determinations by investment funds, and in Say on Pay recommendations issued by proxy advisory firms. For this reason, company proxy statements often include a discussion of pay for performance alignment in the CD&A section or related compensation disclosure.
In 2022, the SEC adopted Pay Versus Performance rules requiring U.S. public companies to disclose a new table and supporting narrative, providing information about the relationship between company financial performance and compensation to the CEO and other Named Executive Officers (NEOs).
The required pay component is referred to by the SEC as Compensation Actually Paid, and is based on modifications to the compensation figures reported in the SCT, including requiring the fair value of equity awards granted be annually updated until vesting, and deduction of change in actuarial present value of all defined benefit and actuarial pension plans, and addition of service cost plus prior service costs.
The performance component includes multiple metrics for which performance must be disclosed. The SEC requires the inclusion of TSR and net income for all companies subject to the rule, plus one or more performance metrics determined by the company to be the most important they use to tie pay to company outcomes (Company-Selected Measure).
The rules require that 5 years of compensation and performance history be included in the new table, Companies are also required to explain the relationship between their total shareholder return (TSR) performance and the TSR performance of a chosen peer group on a market cap-weighted basis.
A group of comparator companies used for various forms of benchmarking, including compensation, TSR, financial metrics, etc.
Provides analysis and voting guidance to shareholders. Major proxy advisors include ISS and Glass Lewis. Shareholders find value in their services as they calculate pay for performance and compensation alignment to inform their proxy voting and engagement processes.
Realizable pay is an aggregate approach to total compensation over a period of time. It is made up of future vesting stock and options as well as base salary and bonuses. Realizable pay may be calculated using information found in a company’s proxy statement, and therefore companies are able to measure the realizable pay of peers in a more straightforward manner than realized pay.
Realized pay is the total pay an executive actually receives during a full fiscal year. Realized pay comprises base salary, bonuses, any stock or options that vested only during the fiscal year, and the value of “all other compensation.”
Total Shareholder Return calculated on a relative basis to a peer group. Another common performance metric.
An index that tracks the performance of the 3,000 largest-traded U.S. stocks which represent about 98% of all U.S-incorporated equity securities (on a market cap share basis).
Advisory voting practice allowing shareholders to express opinion on pay packages granted to executives. Say on Pay originated as a result of the post-2008 Financial Crisis Dodd-Frank bill. The results are non-binding, so the Company is not required to follow the recommendation.
A financial statement or other formal document submitted to the U.S. Securities and Exchange Commission (SEC). Public companies, certain insiders and broker-dealers are required to make regular SEC filings. Investors and financial professionals rely on these filings for information about companies they are evaluating for investment purposes. Many, but not all, SEC filings are available online through the SEC’s EDGAR database.
Anyone who owns 10% or more of a company, or is considered a director or officer of the issuer.
An ownership stake in a publicly-traded company
Companies (including Equilar) survey companies for information on total compensation of their Top 25 paid executives, resulting in anonymized findings to comply with DOJ regulations.
The Standard & Poor’s 500, often abbreviated as the S&P 500, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.
Total Shareholder Return calculated on a relative basis to a peer group. Another common performance metric.
The time at which an executive takes ownership of the award/grant. Typically an executive is granted equity that vests over several years, so he/she receives the value of the equity award in increments.