What Are They Paid?: Glossary

Glossary

Accelerated Vesting
A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner.
Source: Accelerated Vesting

Accelerated vesting is a common stipulation of a CEO's or NEO's contract, where the unvested stock and/or option awards being held by such a person immediately vest. This scenario usually plays out under certain termination circumstances.
Source: WATP Team

Board of Directors
The group of people responsible for supervising the affairs of a corporation. The board of directors generally sets broad corporate policy rather than participating in day-to-day managerial decisions, although selection of the chief executive officer is the board's responsibility. Members are elected by the firm's stockholders and may or may not be stockholders themselves.
Source: Board of Directors

CEO (Chief Executive Officer)
The person responsible to a company's board of directors for carrying out its policies. Essentially, the CEO is the highest-ranking executive managing the firm on a day-to-day basis.
Source: CEO (Chief Executive Officer)

For our analysis, we do not include the CEO as a Named Executive Officer.
Source: WATP Team

Change in Control
Refers to a transfer of ownership in which a new person or entity obtains a fifty percent or greater ownership interest.
Source: Change in Control

Change in Control (CIC) Clause
In employment law, senior executive contracts often contain a change in control clause, which provide that in the event of a change of control of a company, the executive receives enhanced protection against being terminated.
Source: Change in Control (CIC) Clause

Change in Control (CIC) Trigger
An event that triggers the Change in Control Clause.
Source: WATP Team

Chairman
The highest-ranking executive in a corporation. The chairman leads the board of directors in setting broad corporate goals and determining if managers are, in fact, pursuing and achieving those goals. In large corporations the chairman is not ordinarily involved in day-to-day operational activities, although it is likely that he or she was the chief executive officer before attaining the position of chairman. In some corporations, the chairman also serves as the president and the chief executive officer. Also called chairman of the board.
Source: Chairman

Common Stock
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation common shareholders have rights to a company's assets only after bond holders, preferred shareholders, and other debt holders have been paid in full.
Source: Common Stock

Compensation Committee
The Compensation Committee is a group of people chosen by the Board of Directors to establish and oversee the executive compensation strategy of a company. The CEO and other NEOs are often members of this committee, but do not make up the entire committee.
Source: WATP Team

Compensation Discussion & Analysis (CD&A) section
The Compensation Discussion and Analysis ("CD&A") section explains all material elements of the company's executive compensation programs.
Source: Compensation Discussion & Analysis (CD&A) section

Deferred Compensation
Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a date after which that income is actually earned. Examples of deferred compensation include pensions, retirement plans, and stock options. The primary benefit of most deferred compensation is the deferral of tax to the date(s) at which the employee actually receives the income.
Source: Deferred Compensation

Dividend
Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share.
Source: Dividend

Dividend Equivalent Right
In incentive stock options, the right to a credit for additional shares for the value of dividends a firm pays on its shares.
Source: Dividend Equivalent Right

Double Trigger
In the change-in-control context, "double trigger" means that in order for the executive to receive the change-in-control amount, there must be a change-in-control and the executive must lose his or her job.
Source: Double Trigger

Equity
Stock or any other security representing an ownership interest.
Source: Equity

Exercise Price
The price at which the underlying security can be purchased (call option) or sold (put option). Determined at the time the option contract is formed and also known as the "strike price".
Source: Exercise Price

Fair Pay Index
The Fair Pay Index is the rating system used by the WATP Team to analyze executive compensation programs. The WATP Team analyzes each company and agrees upon a rating, called the "FPI Rating". The companies reviewed are listed with overall averages on the page entitled "Fair Pay Index". This page contains links to all of the companies the WATP Team has reviewed.
Source: WATP Team

FPI Rating
FPI stands for "Fair Pay Index". The FPI Rating is the actual rating that a company receives for its executive compensation program. This rating reflects the opinion of the WATP Team regarding each company's current executive compensation program and is explained in the summary and analysis sections on each company page. The rating ranges from A+ to F-.
Source: WATP Team

Golden Parachute
An employment agreement that provides a firm's key executives with lucrative severance benefits in the event that control of the firm changes hands and that shifts in management subsequently occur. A golden parachute benefits management more than the stockholders. Also called golden umbrella.
Source: Golden Parachute

Grant Date
The date on which an option or other award is granted.
Source: Grant Date

Gross Up Clause
A gross up clause is a provision in a contract which provides that all payments must be made in the full amount, free of any deductions or withholdings, and without exercising any right of set-off. The provision will usually indicate that if there is a mandatory withholding or deduction by operation of law (usually with respect to tax), then the paying party shall "gross up" the payment so that the receiving party receives the same net amount.
Source: Gross Up Clause

Incentive Compensation
Pay for executives or other senior staff for achievement of specified company [objectives] or for increase in shareholder value.
Source: Incentive Compensation

Incremental Costs of Aircraft Usage
The executives of many companies, especially the CEO, are allowed to use company aircraft as a perk. The way most companies figure out the cost to them for this perk is by looking at the "incremental cost" (or the "aggregate incremental cost"). This figure includes variable costs (such as fuel, in-flight meals and beverages, landing and handling fees, etc.), but it excludes fixed costs (such as the pilot's salary, the plane itself, etc.). Although the amount is often low compared to total compensation (between $0 and $400,000 per year), we feel the total cost to the company, and thus to shareholders, is much higher than what is reported.
Source: WATP Team

NEO (Named Executive Officer)
NEO stands for "Named Executive Officer". This term refers to the highest paid executives of a company. Usually the company discloses the compensation of the top 3 to 5 highest paid executives. For our analysis, we do not include the CEO as a Named Executive Officer.
Source: WATP Team

Non-Equity Incentives
Non-equity incentives are cash awards given to the CEO and the NEOs. This is a common feature in executive compensation programs. We consider this to be the same thing as a "bonus", although some companies separate the two. Non-equity incentives are often highly discretionary, but within a specified range.
Source: WATP Team

Non Qualified Stock (or Options)
Award of stock or stock options which are not included in an approved incentive compensation program or as part of an Employee Stock Option Plan. Result in different tax treatment for both the recipient and company.
Source: Non Qualified Stock (or Options)

Option
A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.
Source: Option

Outstanding Stock
The shares of a corporation's stock that have been issued and are in the hands of the public. Also called 'shares outstanding.'
Source: Outstanding Stock

Outstanding Options
The same concept as "outstanding stock", but with options granted
Source: WATP Team

Perquisites, or "perks"
Personal benefits, including direct benefits, such as the use of a firm car or expense account for personal business, and indirect benefits, such as up-to-date office decoration.
Source: Perquisites, or "perks"

Poison Pill
An antitakeover tactic in which warrants are issued to a firm's stockholders, giving them the right to purchase shares of the firm's stock at a bargain price in the event that a suitor hostile to management acquires a stipulated percentage of the firm's stock. The poison pill is intended to make the takeover so expensive that any attempt to take control will be abandoned.
Source: Poison Pill

Preferred Stock
A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stock holders. Preferred stock does not usually have voting rights. Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation.
Source: Preferred Stock

Securities
Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds).
Source: Securities

Shares
Certificates representing ownership in a corporation. Shares are also known as stocks or equities.
Source: Shares

Shares Outstanding
SEE "Outstanding Stock".
Source: WATP Team

Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner the right to vote at shareholder meetings and to receive dividends that the company has declared. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event a company goes bankrupt and is liquidated. Also known as shares, or equity.
Source: Stock

Summary Compensation Table (SCT)
The Summary Compensation Table is the cornerstone of the SEC's required disclosure on executive compensation. The Summary Compensation Table provides, in a single location, a comprehensive overview of a company's executive pay practices. It sets out the total compensation paid to the company's chief executive officer, chief financial officer and three other most highly compensated executive officers for the past three fiscal years.
Source: Summary Compensation Table (SCT)

Targeted Compensation
The process whereby a Compensation Committee seeks to target the amount to be earned by an executive. A typical target would be for base salary to match a peer group, annual incentive target at 100% of base salary, and long term incentive value of 400% of base salary.
Source: Targeted Compensation

Total Bonus
Total Bonus refers to the sum of the following sections of the Summary Compensation Table: "Bonus" and "Non-Equity Incentives". Both of these are cash bonuses and are highly discretionary, so we often refer to them in the same "Total Bonus" category.
Source: WATP Team

Total Cash Compensation (TCC)
Total Cash Compensation refers to the sum of the following sections of the Summary Compensation Table: "Salary", "Bonus", and "Non-Equity Incentives". (also, "Salary" plus "Total Bonus")
Source: WATP Team

Total Compensation
Total Compensation refers to the total income reported for the CEO or an NEO of a company in the "Summary Compensation Table".
Source: WATP Team

Vest
Become applicable or exercisable. A term mainly used on the context of employee stock ownership or option programs. Employees might be given equity in a firm but they must stay with the firm for a number of years before they are entitled to the full equity. This is a vesting provision. It provides incentive for the employee to perform.
Source: Vest


Home Fair Pay Index Ratings of the Dow 30 Companies Research Glossary Links Contact Us		Glossary Accelerated Vesting A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner. Source: Accelerated Vesting Accelerated vesting is a common stipulation of a CEO's or NEO's contract, where the unvested stock and/or option awards being held by such a person immediately vest. This scenario usually plays out under certain termination circumstances. Source: WATP Team Board of Directors The group of people responsible for supervising the affairs of a corporation. The board of directors generally sets broad corporate policy rather than participating in day-to-day managerial decisions, although selection of the chief executive officer is the board's responsibility. Members are elected by the firm's stockholders and may or may not be stockholders themselves. Source: Board of Directors CEO (Chief Executive Officer) The person responsible to a company's board of directors for carrying out its policies. Essentially, the CEO is the highest-ranking executive managing the firm on a day-to-day basis. Source: CEO (Chief Executive Officer) For our analysis, we do not include the CEO as a Named Executive Officer. Source: WATP Team Change in Control Refers to a transfer of ownership in which a new person or entity obtains a fifty percent or greater ownership interest. Source: Change in Control Change in Control (CIC) Clause In employment law, senior executive contracts often contain a change in control clause, which provide that in the event of a change of control of a company, the executive receives enhanced protection against being terminated. Source: Change in Control (CIC) Clause Change in Control (CIC) Trigger An event that triggers the Change in Control Clause. Source: WATP Team Chairman The highest-ranking executive in a corporation. The chairman leads the board of directors in setting broad corporate goals and determining if managers are, in fact, pursuing and achieving those goals. In large corporations the chairman is not ordinarily involved in day-to-day operational activities, although it is likely that he or she was the chief executive officer before attaining the position of chairman. In some corporations, the chairman also serves as the president and the chief executive officer. Also called chairman of the board. Source: Chairman Common Stock A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation common shareholders have rights to a company's assets only after bond holders, preferred shareholders, and other debt holders have been paid in full. Source: Common Stock Compensation Committee The Compensation Committee is a group of people chosen by the Board of Directors to establish and oversee the executive compensation strategy of a company. The CEO and other NEOs are often members of this committee, but do not make up the entire committee. Source: WATP Team Compensation Discussion & Analysis (CD&A) section The Compensation Discussion and Analysis ("CD&A") section explains all material elements of the company's executive compensation programs. Source: Compensation Discussion & Analysis (CD&A) section Deferred Compensation Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a date after which that income is actually earned. Examples of deferred compensation include pensions, retirement plans, and stock options. The primary benefit of most deferred compensation is the deferral of tax to the date(s) at which the employee actually receives the income. Source: Deferred Compensation Dividend Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share. Source: Dividend Dividend Equivalent Right In incentive stock options, the right to a credit for additional shares for the value of dividends a firm pays on its shares. Source: Dividend Equivalent Right Double Trigger In the change-in-control context, "double trigger" means that in order for the executive to receive the change-in-control amount, there must be a change-in-control and the executive must lose his or her job. Source: Double Trigger Equity Stock or any other security representing an ownership interest. Source: Equity Exercise Price The price at which the underlying security can be purchased (call option) or sold (put option). Determined at the time the option contract is formed and also known as the "strike price". Source: Exercise Price Fair Pay Index The Fair Pay Index is the rating system used by the WATP Team to analyze executive compensation programs. The WATP Team analyzes each company and agrees upon a rating, called the "FPI Rating". The companies reviewed are listed with overall averages on the page entitled "Fair Pay Index". This page contains links to all of the companies the WATP Team has reviewed. Source: WATP Team FPI Rating FPI stands for "Fair Pay Index". The FPI Rating is the actual rating that a company receives for its executive compensation program. This rating reflects the opinion of the WATP Team regarding each company's current executive compensation program and is explained in the summary and analysis sections on each company page. The rating ranges from A+ to F-. Source: WATP Team Golden Parachute An employment agreement that provides a firm's key executives with lucrative severance benefits in the event that control of the firm changes hands and that shifts in management subsequently occur. A golden parachute benefits management more than the stockholders. Also called golden umbrella. Source: Golden Parachute Grant Date The date on which an option or other award is granted. Source: Grant Date Gross Up Clause A gross up clause is a provision in a contract which provides that all payments must be made in the full amount, free of any deductions or withholdings, and without exercising any right of set-off. The provision will usually indicate that if there is a mandatory withholding or deduction by operation of law (usually with respect to tax), then the paying party shall "gross up" the payment so that the receiving party receives the same net amount. Source: Gross Up Clause Incentive Compensation Pay for executives or other senior staff for achievement of specified company [objectives] or for increase in shareholder value. Source: Incentive Compensation Incremental Costs of Aircraft Usage The executives of many companies, especially the CEO, are allowed to use company aircraft as a perk. The way most companies figure out the cost to them for this perk is by looking at the "incremental cost" (or the "aggregate incremental cost"). This figure includes variable costs (such as fuel, in-flight meals and beverages, landing and handling fees, etc.), but it excludes fixed costs (such as the pilot's salary, the plane itself, etc.). Although the amount is often low compared to total compensation (between $0 and $400,000 per year), we feel the total cost to the company, and thus to shareholders, is much higher than what is reported. Source: WATP Team NEO (Named Executive Officer) NEO stands for "Named Executive Officer". This term refers to the highest paid executives of a company. Usually the company discloses the compensation of the top 3 to 5 highest paid executives. For our analysis, we do not include the CEO as a Named Executive Officer. Source: WATP Team Non-Equity Incentives Non-equity incentives are cash awards given to the CEO and the NEOs. This is a common feature in executive compensation programs. We consider this to be the same thing as a "bonus", although some companies separate the two. Non-equity incentives are often highly discretionary, but within a specified range. Source: WATP Team Non Qualified Stock (or Options) Award of stock or stock options which are not included in an approved incentive compensation program or as part of an Employee Stock Option Plan. Result in different tax treatment for both the recipient and company. Source: Non Qualified Stock (or Options) Option A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date. Source: Option Outstanding Stock The shares of a corporation's stock that have been issued and are in the hands of the public. Also called 'shares outstanding.' Source: Outstanding Stock Outstanding Options The same concept as "outstanding stock", but with options granted Source: WATP Team Perquisites, or "perks" Personal benefits, including direct benefits, such as the use of a firm car or expense account for personal business, and indirect benefits, such as up-to-date office decoration. Source: Perquisites, or "perks" Poison Pill An antitakeover tactic in which warrants are issued to a firm's stockholders, giving them the right to purchase shares of the firm's stock at a bargain price in the event that a suitor hostile to management acquires a stipulated percentage of the firm's stock. The poison pill is intended to make the takeover so expensive that any attempt to take control will be abandoned. Source: Poison Pill Preferred Stock A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stock holders. Preferred stock does not usually have voting rights. Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation. Source: Preferred Stock Securities Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds). Source: Securities Shares Certificates representing ownership in a corporation. Shares are also known as stocks or equities. Source: Shares Shares Outstanding SEE "Outstanding Stock". Source: WATP Team Stock A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner the right to vote at shareholder meetings and to receive dividends that the company has declared. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event a company goes bankrupt and is liquidated. Also known as shares, or equity. Source: Stock Summary Compensation Table (SCT) The Summary Compensation Table is the cornerstone of the SEC's required disclosure on executive compensation. The Summary Compensation Table provides, in a single location, a comprehensive overview of a company's executive pay practices. It sets out the total compensation paid to the company's chief executive officer, chief financial officer and three other most highly compensated executive officers for the past three fiscal years. Source: Summary Compensation Table (SCT) Targeted Compensation The process whereby a Compensation Committee seeks to target the amount to be earned by an executive. A typical target would be for base salary to match a peer group, annual incentive target at 100% of base salary, and long term incentive value of 400% of base salary. Source: Targeted Compensation Total Bonus Total Bonus refers to the sum of the following sections of the Summary Compensation Table: "Bonus" and "Non-Equity Incentives". Both of these are cash bonuses and are highly discretionary, so we often refer to them in the same "Total Bonus" category. Source: WATP Team Total Cash Compensation (TCC) Total Cash Compensation refers to the sum of the following sections of the Summary Compensation Table: "Salary", "Bonus", and "Non-Equity Incentives". (also, "Salary" plus "Total Bonus") Source: WATP Team Total Compensation Total Compensation refers to the total income reported for the CEO or an NEO of a company in the "Summary Compensation Table". Source: WATP Team Vest Become applicable or exercisable. A term mainly used on the context of employee stock ownership or option programs. Employees might be given equity in a firm but they must stay with the firm for a number of years before they are entitled to the full equity. This is a vesting provision. It provides incentive for the employee to perform. Source: Vest