BUSINESSWEEK ONLINE : APRIL 17, 2000 ISSUE
SPECIAL REPORT Compensation Scoreboard Glossary If the system worked perfectly, executive pay would rise when the boss delivered the goods for shareholders. And it would fall when corporate performance declined. But it doesn't always happen that way. In this Scoreboard, Business Week, along with Standard & Poor's Institu-tional Market Services, attempts to measure how closely pay matches performance. The study uses two approaches: It compares an executive's total compensation with the company's total return to shareholders in stock appreciation and dividends over three years. A second comparison measures pay against corporate profitability for the same period. Three years of data are examined to minimize the impact of single-year windfalls. The Scoreboard companies boast market values that are among the 500 largest companies measured by market value for which 1999 compensation data are available. Each company is assigned to one of nine industry groups. Then, each executive's pay, the company's total return to shareholders, and the company's profit record are measured against the others in the group. Performance ratings are given only when three years of data are available. On a scale of 5, 1 indicates the best performance; 5 is the worst. The top 15% of the sample receives a 1, 25% a 2, 30% a 3, 20% a 4, and 10% a 5. 1997-1999 Pay-Performance Analysis PAY VS. SHAREHOLDER RETURN: TOTAL COMPENSATION is the sum of an executive's salary, bonus, and long-term compensation for the three years. VALUE OF $100 INVESTED is the yearend 1999 value of a $100 investment in the company made three years earlier, including both share-price appreciation and dividends (reinvested). RATING shows how an executive stacks up against industry peers, measured in terms of pay relative to total return to shareholders. The rating is based on an index in which the value of the investment at the end of the three-year period is divided by an executive's total pay and then compared with other executives in the same industry group. PAY VS. CORPORATE PROFIT: ROE is the company's average return on common equity over the three-year period. CHANGE IN ROE is the improvement or decline in the company's profitability over the 1997-99 period, expressed in terms of a percentage. RATING shows how an executive compares with industry peers in pay for company profitability. The rating is based on an index that provides equal weight to the company's overall ROE as well as its improvement or decline during the past three years. Both of these measurements are adjusted for the executive's total pay and then compared with others in the same industry grouping. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Executive Pay TABLE: The Top-Paid Chief Executives...And 10 Who Aren't CEOs TABLE: Pay for Performance: Both Ends of the Scale TABLE: Fortunes in the Future TABLE: Pay for Market Performance: Execs Speak Out Who Earned Their Keep--And Who Didn't TABLE: Overachievers TABLE: Underperformers The Package That Launched a Dozen Lawsuits Compensation Scoreboard Glossary SCOREBOARD: 1999 Executive Compensation (.pdf) INTERACT E-Mail to Business Week Online

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