DETERMINING EXECUTIVE EMPLOYMENT COMPENSATION

There are many good sources for compensation information and several ways to make a good compensation estimate. Executive compensation can take the form of salary, stocks, options, bonuses, perks and special incentives. A perk might be a car or a home. A special incentive might be a hiring or performance bonus, which may take the form of cash, options, stock or shares. Additional compensation can take the form of special retirement, termination or golden parachute packages. These key terms will be discussed as the article progresses.

There are a number of places to find compensation information on the Web. The media, salary sites and SEC filings are your best bets. If you can't find compensation information specific to your prospect, these sites can help you make an educated estimate.

CONTENTS:

• The Media
• Salary Web Sites
• SEC Filings
• Using SEC Filings to Estimate Salary
• Other Compensation Information Found in SEC filings
• Private Company Share Information

The Media

If you are lucky, a media announcement of the prospect’s appointment to a position will give compensation information. This is particularly true of high-level executives at public companies, since compensation has to be reported to the Securities and Exchange Commission (SEC) anyway. The nice thing about getting it when they are hired is that it is much more timely than the SEC info, which always lags behind news stories.

Sometimes special compensation, given at retirement, upon termination or when companies merge or are acquired, makes the news. Executives whose compensation makes the news are not the only ones who are newsworthy. Did you know that when a coach is fired from a college or professional team, a termination compensation clause may have been included in the contract signed? While you are unlikely to ever see a coach’s actual contract, sometimes hiring and firing bonuses may be reported, especially if they are likely to provoke public outrage.

At the executive level, trade publications, large local or regional newspapers and business journals are the best sources for articles of this nature. If the prospect is well-known, you might also find articles in The Wall Street Journal or other national business publications. Or use a search engine to build a query on the prospect's name (and all its variations) along with words such as salary, compensation or pay. If there is more likelihood of finding the prospect's compensation information in a local or regional business journal or trade paper, the following are a very limited list of Web sites that offers easy links to such publications.

Newslink connects you to daily, non-daily, business, alternative, national and campus newspaper Web sites, as well as TV and radio stations, magazines and international news sites.

http://newslink.org/menu.html

Gebbie Press links to Web sites of radio stations and daily and weekly newspapers by state and magazines by industry. Look in the left hand frame under Media Links.

http://www.gebbieinc.com/

Local and Regional Business Periodicals on the Web are organized by state and offer a good selection of periodicals.

http://www.bibliomaven.com/businessjournals.html

BizJournals links to the fully searchable archives of all its business publications.

http://www.bizjournals.com/

Yahoo’s Regional U.S. Business Papers may provide additional links that the other business news sites do not.

http://dir.yahoo.com/News_and_Media/Business/Regional_U_S__Business_Papers/

American Business Media to the wide variety of trade magazines it publishes.

http://www.americanbusinessmedia.com/member_directory/product_dir.cgi

If the media is not helpful, there are other plenty of other information sources on the Web, including Internet Prospector’s News Online.

Salary Web Sites

There are lots of general salary information sites where you can find salaries by occupation and industry. Some of them also offer estimates for other compensation like annual bonuses. Others provide salary information based on region, city or zip code. However, geographically-based information can be pretty far off the mark, especially if your prospect works for a very small or very large company. Similarly, national surveys miss the target if your prospect happens to live in an area that falls short of or exceeds the average. In the interest of accurate prediction, try to validate salary information, whenever possible, by checking other sources.

There are several ways to verify information. Use your own hard earned knowledge, search for salary information for your prospect’s specific position in local classifieds, check SEC documents filed by similar public companies in the region or a recruiting professional with compensation knowledge to advise you.

Your knowledge of compensation in your local employment market can be helpful when researching a prospect from out of town. Realtor.com offers The Salary Calculator at

http://www.homefair.com/homefair/calc/salcalc.html

Plug in the state, city and salary amount for the prospect, enter your own city and state, and then evaluate what is considered a comparable salary. For instance, if someone makes $800,000 in Portland, Oregon, they need to make almost $2 million in Manhattan to maintain her or his current lifestyle. This example clearly reveals how the geographic compensation difference affects who might be considered a prospect. When researching an out-of-area prospect, give compensation in geographic context to development officers so they don’t over- or under-estimate a prospect’s giving capacity.

The following are a few sites offering a wide range of salary survey information.

The Riley Guide has a great set of links to wage and salary information. Be sure to check out the sections called Other Ideas for Finding Salary Data and Evaluating Salary Data, too.

http://www.rileyguide.com/salguides.html

Job Star links to over 300 online profession-specific salary surveys. These vary in quality, quantity and specificity of information. The surveys are catch-as-catch-can. If you do find what you need, it’s more likely to be specific to the industry and job than what you find at the general salary sites. Keep in mind that industry surveys usually offer up national salary averages, rather than geographically specific information.

http://jobsmart.org/tools/salary/sal-prof.cfm

Abbott, Langer & Associates have salary surveys and summary data for manufacturing, engineering, accounting, science, nonprofit, management, human resources, benefits, consulting, information technology, marketing/sales and other fields.

http://www.abbott-langer.com/

The Wall Street Journal’s Career Journal links to articles about salary and hiring trends by industry, and to SalaryExpert.com’s salary calculator. This salary calculator has quite a few high-end jobs in alpha order. Look for words like chief, head and top to start a title, as well as the standard job title.

http://www.careerjournal.com/salaries/index.html

At Salary Wizard by Salary.com, choose the job category and zip code or metro area, then the closest job title. Job categories are a strange mixture -- some are industry specific (e.g.: Financial Services) and some are level specific (e.g.: Executive and Management). There are industries within the levels and levels within the industries in each category type.

http://www.salary.com/salary/layoutscripts/sall_display.asp

The U.S. Department of Labor (USDOL) Bureau of Labor Statistics (BLS) now has its Occupational Outlook Handbook on the Web. This is a handy source of salary range information, but gives national averages rather than regional information. I have found the top executive compensation information is so generic that it’s not very helpful. For other positions, this is a good base from which to start. Additionally, each section provides links to professional associations that may offer salary or job outlook surveys.

http://stats.bls.gov/oco/

For major metro salary information, use the BLS National Compensation Survey - Wages site. Select one of the Create Customized Tables options, then select the state and metro area, occupation and work level. For some jobs, you can even customize the work level to reflect your prospect’s level of responsibility.

http://www.bls.gov/ocs/

Or you can take another approach to your search. Enter the phrase “salary survey” and the type of industry or a job title in Google’s Advanced Search to find surveys for specific industries or jobs.

http://www.google.com/advanced_search

In my experience, the higher the person’s position in a company, the less helpful and accurate the generic salary Web sites are. This means more work for the researcher, but we have our ways.

SEC Filings

Salary surveys are helpful, but they often don’t reflect the whole compensation package. Both private and public companies may give bonuses, perks or shares. Private companies are not required to report any compensation information. Public companies are required to report compensation only for directors and their top executives. For instance, at Intel, you find compensation for many executives because there are many beneficial owners, but at a small public company like a regional bank, you may only see the top five.

There are a several SEC forms that can be helpful to you in finding salary, bonus, stock and options and other compensation information. Some are readily available on free information sites, while some can only be obtained with a fee.

Forms 3, 4 and 5 have the most specific shareholding information for “beneficial owners.” A beneficial owner, per InvestorWords (http://www.investorwords.com), is “The individual who enjoys the benefits of owning a security or property, regardless of whose name the title is in.” Benefits generally refer to voting rights, which may be assigned to someone other than the actual owner of shares.

Form 3 is what all company directors and officers and all entities who own more than ten percent of the shares in a company file upon acquisition of shares. Changes to share holdings are reported on Form 4. Form 5 is the share ownership report that directors, officers and ten percent shareholders must file annually. For information required in Forms 3, 4, and 5, see

http://www.sec.gov/divisions/corpfin/forms/form3.htm (Items 1, 4 and 5)

http://www.sec.gov/divisions/corpfin/forms/form4.htm (Items 1, 3, 4 and 5)

http://www.sec.gov/divisions/corpfin/forms/form5.htm (Items 1, 3, 4 and 5)

These forms, especially for shareholders in older companies, are hard to find on the Web. You may have to pay to obtain them through a Web-based provider. A few companies do have these forms on their Web sites, but generally not their entire archives. Sometimes you can get the forms at Edgar Company Search

http://www.sec.gov/edgar/searchedgar/companysearch.html

by entering the person’s last name in the Company Name field and checking the box to include Forms 3, 4 and 5. If you get a big list, you can refine your search by Form Type or Date in the search box in the upper right side of the results list.

You can get Form 4 information from CBS Marketwatch, courtesy of Thomson Financial Network, at

http://cbs.marketwatch.com/tools/quotes/insiders.asp?siteid’mktw

or from other “insider” reporting sites, but information usually only goes back ten years or so. If you don’t have the original holdings, it is impossible to calculate the current holdings. However, you can see the transaction type (e.g.: stock gifts, exercise of options or open market sale) and sometimes this is a good supplement to information found in other SEC documents.

Annual reports, Form 10-K, are filed with the SEC by public companies (once a year, obviously) to inform shareholders of the company’s financial performance during the previous year and to give an overview of company operations. The forms provide a fair bit of compensation detail. Of particular interest are Executive Compensation and Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Make sure you read all the compensation footnotes in each section for your prospect’s information. To be clear about what compensation information must be included in an annual report (10-K), check out Items 10, 11 and 12 in the SEC’s Form 10-K instructions:

http://www.sec.gov/divisions/corpfin/forms/exchange.shtml

Proxy statements, Schedule DEF-14A, are filed any time a public company has matters upon which the SEC requires shareholders to vote. They are filed at least once a year prior to the annual shareholder’s meeting because that’s when directors are elected by shareholders. Proxy statements contain information about corporate operations to ensure voters have the big picture, including a goodly amount of compensation detail. Check out sections with headings such as Voting Securities and Principal Holders Thereof, which lists officers, directors and ten percent plus shareholders; Compensation of Directors and Executive Officers for salary, bonus and share and perk awards; Beneficial Ownership to see who owns which large chunks of stock; Security Ownership of Directors and Executive Officers, which shows specific shareholdings of company big wigs; and Compensation Plans to find more complex detail about historical or recent changes to compensation. Once again, be sure to peruse the footnotes for those all important restrictions and explanations. Precise details about compensation information in proxies are available in Items 8, 10 and 22 at:

http://www.sec.gov/divisions/corpfin/forms/sch14a.htm

Companies are required to file Form S-1 with the SEC when making an Initial Public Offering (IPO) of shares. With the S-1, you get in on the ground floor with compensation information in more detail than you can shake a stick at. Read sections like Director Compensation, Executive Compensation, Stock Ownership of Directors and Executive Officers, Grants of Stock Options, Exercise of Stock Options, Stock Appreciation Rights (see InvestorWords for a definition of SARs), Pension Plans, Incentive Plans, Awards and Change in Control, which outlines how compensation will be handled if the company is sold. If the company has an Employee Stock Purchase Plan, read that section to see how it interacts with executive share awards. Provided the prospect stays with the company, you can follow his or her share accrual and compensation over time and through retirement -- a big plus for long term major and deferred gift planning. Read Item 11, subheadings k, l and m, in the S-1 instructions to find out what compensation information is included in a prospectus.

http://www.sec.gov/divisions/corpfin/forms/s-1.htm

For more information about SEC forms and schedules, see the U.S. Securities and Exchange Commission (SEC) site at:

http://www.sec.gov/divisions/corpfin/forms/exchange.shtml

If you are having a hard time finding pertinent information in SEC filings, try doing word searches for “executive,” “director,” “compensation,” “award,” “option,” “incentive,” “bonus,” “salary,” “officer,” “ownership” and other compensation related words.

Unfortunately, there are a lot of people, even high level executives, whose compensation is not reported. But SEC data can be used to estimate salary and compensation for executives not listed or for executives at private companies, since private companies need to be competitive to attract good talent.

Using SEC Filings to Estimate Salary When Exact Information is Unavailable

One way to figure out salary is to calculate the percentage difference between the salaries and other compensation of the executives whose compensation is listed in the employer’s SEC filings. When doing this, it is important to look at each type of compensation over time.

For instance, at one company I researched, there was about a 10 percent difference across the board between the chairman and CEO, the CEO and president and the president and the COO. The percentage difference was the same every year for the last five years. In that case, I assumed that a VP made 10-20 percent less than the COO (I always give a range instead of an exact figure). The percentage difference in bonuses, stocks and other benefits awarded annually was similar, so that one was a piece of cake all around.

Sometimes compensation figures appear random for executives at the same company. There are several factors that could contribute to such variance. Length of time with the company is usually the primary factor. If someone has been with a company since its founding, take into account that compensation could appear high because there may have been additional rewards for hanging tough during the company’s at-risk start-up period. I’ve found, in this situation, that charting compensation over time can be very helpful. I was working out compensation for a VP at a company that paid very well, but salaries, options and share holdings were all over the board. When I charted them out over time, I was able to see how length of employment had affected compensation, enabling me to estimate a range for starting salary, options and stock holdings for my prospect. Also, I found that compensation increases over time followed a fairly predictable pattern, which helped me figure out my prospect’s current salary. The project took a lot of hard work, but it was worth it.

Variance in salary levels or other compensation within a company also can be affected by incentive compensation, used to attract the “best and brightest.” When high tech was in full swing a few years ago, some new employees were getting absurdly high salaries, stock, options or bonuses for signing on and some old employees were negotiating incentives to stay put. Once again, historical compensation information can be an important piece of the puzzle. Be sure to read the “fine print” (compensation footnotes) in the SEC filings to get the particulars of special circumstances terms and conditions. For the top compensated employees in a public company, this information is readily available. For employees not listed in the SEC filings, you may be able to extrapolate compensation figures, as given in the examples above.

Looking at SEC filings of a larger or more prosperous company may help with estimating compensation. Other companies may be required to file compensation information about the lower echelons of their upper crust, such as VPs. You may be able to estimate a salary by finding the difference between the top salaries provided by the two companies and extrapolating down to your prospect’s management level at the prospect’s company.

If a potential donor works for a private company, try to find like-sized companies with similar sales levels in the same industry and in the same geographic region. To find these companies, find the SIC code(s) for the appropriate industry(ies) at the Occupational Safety & Health Administration (OHSA) site.

http://www.osha.gov/cgi-bin/sic/sicser5

Then search by SIC code at SEC Info to find compensation information in a recent 10K, DEF14-A or S-1 filings with the SEC (see Stocks and Options below for more information on SEC filings).

http://www.secinfo.com/$/Search.asp

I like to create an Excel chart with the comparison information and let it calculate averages for me. If you can find other companies in a similar geographic area, that is best. If not, you can use the Salary Calculator (http://www.homefair.com/homefair/calc/salcalc.html) to figure out the difference between salaries in the two areas and move your figure up or down based on your findings.

Other Compensation Information Found in SEC filings

Executives may have clauses in their contracts awarding them additional compensation such as stocks, stock options, retirement plans, “golden parachutes,” termination clauses and bonuses. One of the most important things to remember when researching this additional compensation is reading the compensation footnotes in the SEC filings. I cannot stress this enough and will repeat it often!

Bonuses

An employee may receive a bonus for joining the company, meeting performance thresholds or taking early retirement. Bonuses are usually listed with salary information for officers and directors. Read the bonus footnotes to find out how the bonus was calculated and/or why it was awarded.

Additional Compensation

Other compensation can include cars, homes, vacations, memberships, planes or whatever may strike the lucky person’s fancy. Other compensation is also listed with salary information for officers and directors. As always, read the footnotes for the whys and wherefores.

Stocks and Options

Public companies issue stock shares and stock options. A share is one unit of ownership in a company or limited partnership and may offer voting privileges as well. An option, according to Investor Words, is “the right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time.” Companies are required to file what’s called “beneficial ownership information” of direct and indirect share holdings for officers, directors and owners of ten percent or more of the companies’ stock. These owners are called “insiders.” A direct share is owned directly by the insider. An indirect share is owned by another entity (e.g.: spouse, trust, company or partnership), but its vote is controlled by an insider. Because the insider has voting rights to the share, that affiliation must be disclosed. In an SEC filing, a footnote for indirect shares usually reveals who actually owns the indirect shares.

The combination of insider information from a site like CBS MarketWatch and SEC filings will usually give you a pretty decent picture of a prospect’s share holdings. Remember, however, that SEC forms are usually only filed once a year, for the previous year’s information, so you are always reporting historical information. I always report stock and option holdings with the date of the filing(s) from which I obtained them so the development officer knows when the information was reported. If the holding information is particularly convoluted, I try to explain it clearly, with dates, so the fund raiser understands how I arrived at my final holdings estimate.

When calculating how much holdings are worth, take into consideration the tax basis, that is, the value of the shares when bought by or given to the owner. If shares are given to the prospect and the prospect makes no payment for them, the tax basis is $0 and the entire sale amount is considered taxable under capital gains law at the time the prospect sells the shares. If shares are purchased under an option agreement, the specified or “strike” price is the value and the difference between the strike price and the sale price is considered capital gains and, therefore, taxable. When the tax burden is high, a gift to reduce tax liability may be worth exploring with the prospect. If the prospect did not make much profit when selling shares, a gift may not be as attractive.

Another consideration in determining the tax basis value of stock holdings is stock splits. For instance, my father has some AT&T stock, which has had innumerable splits, including a recent reverse split. Not to mention the splitting headache doing the calculations gave me, even though AT&T, like many other companies, has a handy tax basis calculator on its site. To use a tax basis calculator, you need to know the number of shares, the original purchase price and the date of purchase or receipt. Look for calculators in the Investor Relations or Shareholder Services sections of a company’s Web site.

Retirement Compensation

Retirement compensation is usually different for officers and directors. Read SEC filings carefully to make sure you are reading the right retirement plan information. This is great information to review when you have a prospect nearing retirement age to help qualify the prospect as a planned giving prospect (especially if current compensation is good and retirement compensation is poor, relatively speaking) or to determine if the executive will remain a major gift prospect after retirement. Sometimes executives are required to exercise their options or lose them when they retire . . . and they will buy the shares, then sell some of them to feather their retirement nest. If they buy the shares and keep them, they may be feeling cash poor for a while . . . something to consider if you are planning a solicitation. Sometimes, they are rewarded for long and good service with a huge chunk of stock. Look for stock awards or option requirements in the retirement plan to determine if and when there will be a window of opportunity.

Termination Compensation

If a public company executive is at a level where compensation has to be reported to the SEC, any special compensation for being terminated or early retirement will be reported in the 10K and/or annual report of the year in which the person got the boot. Be sure to read all the compensation footnotes, too. The footnotes give details and time and other restrictions for such deals.

Golden Parachutes

The same reporting rules apply to golden parachutes. According to InvestorWords, a golden parachute is

“A clause in an executive's employment contract specifying that he/she will receive large benefits in the event that the company is acquired and the executive's employment is terminated. These benefits can take the form of severance pay, a bonus, stock options, or a combination thereof.”

Stock or option awards are for shares in the acquiring company and must be disclosed. Usually the terms of such awards are given in news articles about the merger or acquisition, as well as in later SEC documents. Another example of a golden parachute is awarding an executive a generous consulting contract for a specified period of time with the acquiring company. Contract details may be available in the footnotes or in a media announcement about the merger or acquisition.

A solicitation window of opportunity may occur when the prospect’s employer is acquired or merged. This is why knowing about golden parachute compensation is important.

Private Company Share Information

Hopefully, you will be able to determine a private company executive’s cash compensation, such as salary and bonus, in the media, at a salary survey site or by using one of the estimation methods described in the section above.

In addition to salary and bonuses, private company can also give or sell stock or shares. Inc.com (http://www.inc.com) has a great article called “Private Company Stock” about how private company stock value is determined at

http://www.inc.com/articles/hr/bene_comp/bene_comp_basics/18710.html.

Understanding how private company stock works can be helpful when you are trying to figure out how much someone’s shares are worth, on paper at least. It is harder to find ownership percentages for a private company. Occasionally, the annual report filed with the state (usually with either the Secretary of State’s office or the Attorney General’s office) includes owner’s names and percentage owned. Sometimes, if you are lucky, it is reported in the media. But you will probably have to pay for the information from a source like Dun & Bradstreet.

As you have seen, compensation takes many forms and help with such information is found in countless places on the Web. Whether it appears in stocks, bonuses or a golden parachute, the Internet Prospector unearthed some of the better sites and ways to value compensation.

Chris Mildner

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