The GM CEO Issue & the Misunderstanding of Executive Compensation
The past three weeks has been a roller coaster for General Motors in the news. The reason: the media doesn't understand executive compensation structures…again. The issue of the gap between genders is a big one, and we do not mean to discredit it as being that on average women are making approximately 75% of what men make is a real issue for our future workforce. This issue aside, the media hyped this story up without a full understanding of what the CEO's potential "realized" compensation would be at the end of 2014 including annual and long-term incentives. Now we know according to this article in the NYTimes that Ms. Barra will actually have the potential to earn over 60% of what the recent CEO earned last year.
With increased disclosure requirements and more pressure from shareholders and potential litigation, companies are having to spend more time and effort on educating about compensation decisions. Specifically, what is "actual" vs. "targeted" vs. "realized" compensation. We have written many articles on this subject, one of which was in The Corporate Board called "How Do we Define Executive Pay?"
This issue of understanding actual vs. targeted vs. realized is going to be a big one for companies to explain in the next few years, as Say-on-Pay, and ISS have helped to make the spotlight on compensation many times brighter.
P.S. An interesting analysis would be to find out what was the cost to the company (money, time and efforts) GM had to take on to respond to the media, deal with investors, all to disclose these decisions which would have been available to the public come the companies proxy statement in a couple of months.