Under current SEC disclosure rules, companies must provide several tabular disclosures of executive compensation information. The most notable of the required tables is the Summary Compensation Table which is intended to provide a picture of the annual compensation of a company’s CEO and four other highest paid executives. However, the Summary Compensation Table provides an “accounting view” of executive pay which is inadequate for comparing executive pay to company performance.
The problem with the Summary Compensation Table is that it combines multiple types of compensation some of which will be earned during the year (i.e. salary) with equity awards which may or may not be earned at all based on future company financial performance. Thus the “total” dollar figure provided in the Summary Compensation Table does not provide an accurate view of what an executive takes home on an annual basis.
With the implementation of mandatory say on pay, many companies and investors have expressed frustration with the inability to the summary compensation table to effectively show the pay for performance relationship. As a result, companies have developed multiple alternative pay disclosures – Realized Pay and Realizable Pay – which, although lacking in standardization, are viewed as doing a superior job of communicating executive pay for a performance comparison.