Friday, December 21, 2007

The Boss' Pay Scale

The SEC has debuted a new tool on its web site called the Executive Compensation Reader to facilitate due diligence on how much public companies pay their top executives. The SEC has taken several steps to make executive compensation more transparent to investors. However, compliance with the new disclosure requirements has come in a hodgepodge of tables and fine print. The new SEC database uses XBRL tags embedded in public company filings to pulls executive compensation data together in a single table.

Investors can look up compensation by ticker symbol or company name or search for a list of companies by size or industry. Leaving the selection criteria blank produces an alphabetical list of all 500 companies now included in the database.

The under $2.1 billion category includes 71 companies. Top of the list is
Abraxis BioScience, Inc. (ABBI: Nasdaq). Compensation for six of its top executives is displayed in one graph, making it easy to see that the CEO and Chairman, Patrick Soon-Shiong, was paid $2.6 million salary, bonus, stock awards, and equity. Exxon Mobile Corp. (XOM: NYSE) is the largest company in the database. Exxon’s highest paid executive is E.G. Galante, a senior vice president, who cashed in on $17.4 million in 2006 because he retired in February 2006. R.W. Tillerson, who is chairman and CEO, raked in $13.0 million, but he had to work the entire year.

What the database does not tell us is whether the compensation is fair. No one has come up with a valid metric that can be applied across industries or even with an industry. Of course, there are always special events such as a capital raise or acquisition that energize growth. Most consider it appropriate for executives to receive extra compensation for successful execution on such projects.

One thing the database does allow is a quick look at compensation across an industry. The petroleum refiner category that Exxon is in also includes
Chevron Corp. (CVX: NYSE). It is interesting to note that Chevron’s Chairman and CEO, D.J. O’Reilly, was paid $31.6 million in 2006. By comparison Tillerson looks like he got short changed since he runs a substantially larger operation at Exxon than O’Reilly at Chevron.

Industry comparisons can be made for Abraxis as well.
OSI Pharmaceuticals, Inc. (OSIP: Nasdaq) is in the same industry category. Colin Goddard, CEO and Director, earned $1.9 million in 2006, after the post was left vacant by former CEO David Guyer. Guyer was paid $2.4 million most of which was in the form of option awards. Comparison of compensation between the two companies yields little insight into the fairness questions. However, we note that the Big Dogs at OSI were well paid in 2006 given that the company was still losing money hand over fist. The next loss was $582.2 million on $375.7 million. Maybe the board was feeling warm toward management in anticipation of profits they have produced so far in in 2007.

All of this information is available in public filings, but the database speeds analysis by several orders of magnitude. Use of XBRL tagging also eliminates most of the errors that creep into other databases that rely on data entry by human hands.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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