The Advisors' Blog

– Broc Romanek, CompensationStandards.com

The WSJ’s Emily Chasan recently wrote this article:

With the Standard & Poor’s 500-stock index striking a fresh record high Thursday, many executives who were issued stock options during the financial-crisis era could stand to take home substantially more money than expected when the options were granted.

In a study on Thursday of realizable pay figures, or the amount of compensation an executive could have taken home in a given year, compensation researcher Equilar found that at 20 companies with the highest realizable pay figures last year, 26.5% of executives’ pay stemmed from 2010 equity awards. By comparison, strong stock market performance in 2012 depressed the value of most recent stock option grants, which only comprised 15.5% of the executives’ realizable pay.

“Because the stock market was so low in 2010, a lot of companies were giving their executives greater numbers of options,” said Aaron Boyd, director of research at Equilar. “For many companies, the current value of the awards is a lot higher than what was originally estimated, since a lot of the estimations were based on slower growth estimates.”

Over the past few years, companies have increasingly looked to emphasize realizable pay, which includes stock option and equity grants that have vested, but may or may not have been cashed in. That differs from the compensation figures required by the U.S. Securities and Exchange Commission, which focus on the potential value of an equity grant on the date it is given. Realizable pay typically trails that figure when stock performance is negative, but can often exceed it when stock performance is positive, according to Equilar.

Of the 20 companies where executives had the highest amount of realizable pay in 2012, 16 reported double-digit total shareholder returns that year.