The chief executive at General Electric Co, the second-largest U.S. company by market capitalization, won a 9.6 percent pay raise in 2007, or a 7 percent raise, or took a 6 percent pay cut, or an 11.8 percent pay cut -- depending on who does the math.
When GE's annual proxy was disclosed on Monday, journalists and corporate governance groups pulled out their calculators and used different formulas to crunch the pay and compensation numbers, with many ignoring the document's own pay total for CEO Jeffrey Immelt.
The single pay figure for a top executive's compensation is a product of a relatively new U.S. Securities and Exchange Commission rule intended to shine more light on pay and perks.
But few can agree whether that total figure is truly representative of what an executive pockets, leaving investors in a lurch and having to judge whose number is more right.
There are people who have been trying for a long time to get one number, said Damon Silvers, associate general counsel for the AFL-CIO labor federation. I think now with experience, it's clearly led to a world in which the number the commission puts out is not the number most investors think it should be.
At the heart of the issue is how stock option awards are reported -- the result of a controversial, 11th-hour change to the SEC's new pay disclosure rules issued in 2006.
A stock option award is the right to buy a specified number of shares of stock in the future at a specified price, or strike price.
The value of an executive's stock options during a year is typically reported two ways. One is the value of the options granted to an executive during the year, even though some of the options may not yet be exercisable. The other is the value of the options that vested, or became exercisable, during the year.
The summary compensation table initially planned by the SEC was to include an estimated value for stock options granted to executives during a particular year. That would essentially represent the amount given to executives in that year.
But the SEC changed its mind and decided the table would instead include the value of option grants that vested during the year. That figure reflects the company's accounting expense -- not necessarily what was granted to executives during the year.
Some investor advocates said the SEC's focus on incremental vesting amounts could obscure the real gains of executives, by shrinking the option values in the summary table and in the bottom-line total pay number.
But the SEC said such fears are unfounded, noting that switching from its original approach to the final rule did not consistently move the pay figures in one direction.
CEOs at the 100 largest companies had a combined total compensation in 2006 of $1.89 billion, based on the value of grants that vested during the year, the agency said. The total would have been $1.79 billion under its initial approach.
PAY RAISE OR PAY CUT?
Still, journalists and shareholder rights groups cannot agree whether to report the compensation expense a company incurs, or an estimate of how much an executive pocketed.
The amount expensed in the current year is less relevant to investors than how much the board committed to pay executives in future years, said Amy Borrus, deputy director of the Council of Institutional Investors. What constitutes total compensation remains elusive, and that is troublesome for investors.
The Wall Street Journal and Bloomberg News reported Monday that GE's Immelt got a pay raise of almost 10 percent in 2007 to $19.6 million. The Associated Press said Immelt was paid $14.2 million in 2007, but did not describe it as a pay cut.
Reuters also reported that Immelt was awarded $14.2 million in 2007, noting that it was a 6 percent cut after factoring in plan-based awards.
But according to the calculation used on the AFL-CIO's Executive Paywatch Web site, Immelt's pay was slashed by 11.8 percent to $14.3 million in 2007.
The figures varied due to calculations of stock and option awards and pension benefits.
A GE spokesman did not return a call seeking comment.
The problem lies in the complexity of the SEC disclosure requirements and interpreting them, according to Alan Johnson, a principal with compensation consultant Johnson Associates.
This has enriched lawyers and enriched consultants like us, but has benefited investors very little, Johnson said.
The SEC intended for the new disclosure rules to provide a more current, in-depth picture showing not only how much executives get paid, but why they get paid what they do.
Executive pay has been a hot topic with investor advocates. The average CEO of an S&P 500 company made $15.06 million in 2006, more than 300 times the U.S. median annual household income, they say.
SEC spokesman John Nester said the disclosure rules give investors a total pay figure that has the benefit of being calculated in a consistent way by all public companies. The new disclosures provide one number for total compensation that investors can compare from executive to executive, and from company to company, he said.
But Don Lindner, head of the executive compensation practice at human resources industry association WorldatWork, said a single figure for executive pay can be nearly meaningless because of the complexity of compensation packages. Many variables are involved -- such as pension benefits, bonuses based on multiples of base salary, and even an executive's age, he said.
There really isn't one number that describes a pay package, Lindner said.