Compustat Executive Compensation Database

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Compustat Executive Compensation

Database

Mireia Gine

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Associate Director of Research Services

October 2, 2007

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Objective

• A pass on the wide research topics that involve this dataset.

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• Learn about ExecuComp content and structure.

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Motivation

• In 1992 the average CEO of

SP500 firm earned $2.7 M.

• In 2000, the average pay

had increased to over

$14M. An increased of more

than 400%.

• In relative terms: in 1992,

CEO were paid 82 times the

average earning of an

average worker. In 2005,

there were paid 369 times.

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Three explanations

1. The adoption of stock‐based compensation packages since

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the late 1980s. Market‐based incentives to enhance

productivity.

2. The “fat cat” explanation: CEOs are entrenched and have

captive boards that allow this pay increase.

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3. The market for CEOs has changed: more demand for high

talent. More competition for the top of the crowd.

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Research Issues in Executive Compensation

• How is CEO compensation determined?

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• Do incentives work?

• Which part compensates for talent, luck, rent extraction?

• Why has CEO pay increased so much over the last decade?

Has the market for top talent changed?

• Does the pay increase reflect poor governance?

• What has been the evolution of the gender gap?

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On ExecuComp

• Universe: 2,500 companies both active or inactive. S&P 1500 plus companies removed from the index but still trading. • Data is collected from each company annual proxy DEF14A, which must be filed 120 days after the company’s fiscal year end. • How many executives? y Up to 9, though most companies only report 5. • How are they identified?

EXECID is permanent id for each executive through out her career EXECID is permanent id for each executive through out her career. CO_PER_ROL identifies executive/company combination.

• Data on executives:

Individual characteristics: title age gender date became/left as CEO – Individual characteristics: title, age, gender, date became/left as CEO.

– Compensation: Salary, Bonus, Restricted Stock Awards, Option Awards, Non‐

Equity Incentive Plan, Deferred Compensation, Pension Plan. – Shares OwnedShares Owned.

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New Reporting Requirements FAS 123

• FAS 123 (R) : Equity based compensation has to be expensed and be reflected in the financial statements based on fair value of the awards. Companies with fiscal year end after Dec 2005 have to adjust to new rules. All data available in the past continues to be available; NO info has been purged. • DEF14A has new tables : – Summary Compensation: discloses salary, bonus, stock awards, option awards, change in pension value other compensation. Option exercises and Stock vested. – Plan Based Table: contains details on the option awards, on the restricted stock awards, and estimated payouts for equity and non‐equity incentive plans. – Outstanding awards Table: information on unexercised options, stock that has not g p , vested and equity incentive plan awards outstanding. – Deferred Compensation Table: reports the executive or company contributions, earnings and withdrawals and account balances for the deferral programs.

Pension Benefits Table: information regarding each plan of the company that provides – Pension Benefits Table: information regarding each plan of the company that provides

payments in connection with retirement.

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ExecuComp Structure for 2006 fiscal year

• New data tables:

– AnnComp: summary compensation data + otherAnnComp: summary compensation data + other.

– PlanBasedAwards : from proxy table of same name. – OutstandingAwards: from the Outstanding Equity Awards table. f d f h f d bl – DeferredComp: from the Deferred Compensation table. – Pension: from the Pension Benefit table. – DirectorComp: from the Director Compensation table.

• Old data tables. Only available for 1992 Reporting Format:

– Stgrttab: Stock Options Grants.

Ltawdtab: Long Term Incentive Plan Awards

– Ltawdtab: Long Term Incentive Plan Awards.

• Unchanged data tables:

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ExecuComp in WRDS

• Dataset through Web‐query:

Execcomp

Anncomp, Stgrttab, Ltawdtab

Cole, Cdirfin,Coperol, Person

• Datasets in WRDS Unix: /wrds/compustat/sasdata

Execcomp plus all the rest:

Execcomp, plus all the rest:

Deferredcomp, Directorcommp, OutstandingAwards, Pension,

Planbasedawards ex black exnames

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SEC Proxy Filling DEF14A: New format

Summary compensation table for EastmanKodak 2006 fiscal year end

Change in Pension Value Non-Equity and Deferred

Name and Fiscal Stock Stock Incentive Comp All Other

Principal Position Year Salary (1) _Bonus _Awards(2) _Options(3) _Comp(4) _Earnings(5) _Comp(6) _Total

A. M. Perez

Chairman & CEO 2006 $1,096,168 $690,525 (9) _{$1,399,982 $1,704,007} _$ ₀ _{$3,214,598 $ 269,020 $8,374,300}

F. S. Sklarsky

EVP, CFO (7) ₂₀₀₆ _91,986 _75,000(10) _74,781 _78,333 ₀ _18,303 _2,539 _340,942

R H B t

R. H. Brust

EVP, Former CFO 2006 745,395 562,378 (11) _346,265 _261,340 ₀ _1,689,235 _612,082 _4,216,695

J. T. Langley SVP, President -GCG 2006 498,258 150,550 (12) _160,299 _291,079 _490,000 _171,160 _58,400 _1,819,746 P. J. Faraci P. J. Faraci SVP, President -CDG 2006 518,188 130,572 (9) _179,631 _381,227 ₀ _319,305 _42,614 _1,571,537 M. J. Hellyar SVP, President -FPG 2006 484,843 130,634 (9) _211,734 _279,322 ₀ _1,102,430 _10,349 _2,219,312 Former Executive D. T. Meek (8) SVP, Director - GM&L 2006 258,711 125,550 (13) _115,681 _402,276 ₀ _{25,214 1,576,084} _2,503,516

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SEC Proxy Filling DEF14A: old format

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New tables in DEF14A

Plan Based Awards table Boeing 2006 fiscal year‐end

Name Type of Award

Grant Date Number of Units Granted (#)

Estimated Future Payouts Under Non-Equity Incentive Plan

Awards All Other Stock Awards: Number of Shares of Stock or Units (#) All Option Awards: Number of Securities Underlying Opti ons (#) Exercise Price of Option Awards ($/Sh) Grant Date Fair Value of Stock and Option Awards Threshold Target Maximum

yp ( ) g ( ) p ( ) ($ )

W. James McNerney, Jr. Annual Incentive Award — $1,487,500 $2,975,000 $ 4,025,000 — — $ — $ —

Performance Award 56,875 1,421,875 5,687,500 11,375,000 — — — —

St ock Opti ons 2/27/2006 — — — — — 261,000 74.45 6,003,000

James A. Bell Annual Incentive Award — 294,065 588,130 1,176,260 — — — —

Performance Award 12,675 316,875 1,267,500 2,535,000 — — — —

St ock Opti ons 2/27/2006 — — — — — 66,000 74.45 1,518,000

James F. Albaugh Annual Incentive Award — 368,440 736,880 1,473,760 — — — —

St ock Opti ons 2/27/2006 — — — — — 66,000 74.45 1,518,000

Laurette T. Koellner Annual Incentive Award — 260,345 520,689 1,041,378 — — — —

Performance Award 6,600 165,000 660,000 1,320,000 — — — —

St ock Opti ons 2/27/2006 20 000 74 45 460 000

St ock Opti ons 2/27/2006 — — — — — 20,000 74.45 460,000

Richard D. Stephens Annual Incentive Award — 182,538 365,075 730,150 — — — —

Performance Award 6,110 152,750 611,000 1,222,000 — — — —

St ock Opti ons 2/27/2006 — — — — — 28,000 74.45 644,000

MDSUs (1) — — — — 7,190 — — 588,888

Alan R. Mulally(2) Annual Incentive Award — 368,440 736,880 1,473,760 — — — —

St ock Opti ons 2/27/2006 — — — — — 66,000 74.45 1,518,000

MDSUs (1) — — — — 3,117 — — 247,965

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Opti on Awards Stock Awards Number of Securi ties

Underlying Unexercised Options (#) Service-Based Equity Awards Equity Incentive Plan Awards Number of Shares or Market Value of Shares or Number of Unearned Shares Units Market or Payout Value of Unearned

Outstanding

Equity Awards

Name Grant

Year Exercisable Unexercisable

Opti on Exercise Price ($) Option Expiration Date Shares or Uni ts of Stock That Have Not Vested (#) (1) Shares or Units of Stock That Have Not Vested ($) (1) Shares, Units or Other Rights That Have Not Vested (#) (2) of Unearned Shares, Units or Other Ri ghts That Have Not Vested ($) (2) W. James McNerney, Jr. Equity Awards(3) — — — — — 308,867 $ 27,439,744 — $ — Stock Options 2006 — 261 000(4) 74 45 2/27/2016

Equity Awards

table at 2006

Fiscal year‐end:

Stock Options 2006 261,000(4) 74.45 2/27/2016 2004 960 1,440(5) 43.12 5/03/2014 2003 1,680 720(6) 28.22 4/28/2013 2002 2,100 900(7) 44.13 4/29/2012 James A. Bell Equity Awards — — — — — 46,528(10) 4,133,547 49,089 4,361,048 Stock Options 2006 — 66,000(8) 74.45 2/27/2016 2003 4,000 6,000(9) 26.88 4/21/2013 Describes the outstanding stock options and unvested James F. Albaugh Equity Awards — — — — — 58,012(13) 5,153,786 83,932 7,456,530 Stock Options 2006 — 66,000(11) 74.45 2/27/2016 2003 352 6,000(12) 26.88 4/21/2013 Laurette T. Koellner Equity Awards — — — — — 47,652(15) 4,233,404 62,681 5,568,574 Stock Options 2006 — 20,000(14) 74.45 2/27/2016 stock awards held by officers as of Dec 31st 2006. Richard D. Stephens Equity Awards — — — — — 31,617(17) 2,808,854 32,643 2,899,985 Stock Options 2006 — 28,000(16) 74.45 2/27/2016 Alan R. Mulally Equity Awards — — — — — — — 95,281 8,464,795 Stock Options 1998 197,781 0 45.06 6/29/08

(1) The fol lowing table shows the aggregate number and value of unvested BSUs Career Shares restricted stock RSUs and MDSUs held by each of t he (1) The fol lowing table shows the aggregate number and value of unvested BSUs, Career Shares, restricted stock, RSUs and MDSUs held by each of t he

offi cers as of December 31, 2006:

Name

Number of Shares or Units of Stock That Have Not Vested

Market Value of Shares or Units of Stock That Have Not Vested

BSUs Career Shares

Restricted

Stock RSUs MDSUs Total BSUs

Career Shares

Restri cted

Stocks RSUs MDSUs Total W. James McNerney Jr 0 0 308 867 0 0 308 867 $ 0 $ 0 $27 439 744 $ 0 $ 0 $27 439 744 McNerney, Jr. 0 0 308,867 0 0 308,867 $ 0 $ 0 $27,439,744 $ 0 $ 0 $27,439,744 James A. Bell 13,019 10,655 0 22,854 0 46,528 1,156,608 946,590 0 2,030,349 0 4,133,547 James F. Albaugh 17,845 22,044 0 0 18,123 58,012 1,585,350 1,958,389 0 0 1,610,047 5,153,786 Laurette T. Koellner 13,889 14,405 0 0 19,358 47,652 1,233,899 1,279,740 0 0 1,719,765 4,233,404 Richard D. Stephens 6,614 10,281 0 0 14,722 31,617 587,588 913,364 0 0 1,307,902 2,808,854 Alan R. Mulally 0 0 0 0 0 0 0 0 0 0 0 0

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Option Exercises and Stock Vested during 2006

Option Awards Stock Awards

Number of Number of

Name of Executi ve Officer Type of Award

Shares Acqui red on Exercise

(#)

Value Realized on Exercise

($)(1)

Shares Acqui red on Vesti ng

(#)(2)

Val ue Realized on Vesting

($)(1)

W. James McNerney, Jr. Restricted Stock — $ — 82,133$ 6,62 7,145

James A. Bell Options 9,294 312,337 — —

BSUs — — 2,508, 182,590,

Performance Shares — — 64,807 5,38 7,858

James F. Albau gh Options 13,650 548,259 — —

BSUs — — 7,662 557,782

Performance Shares — — 151,616 12,534,682

Laurette T Koellner BSU 6 080 442 644

Laurette T . Koellner BSUs — — 6,080 442,644

Richard D. Stephens Options 12,890 346,102 — —

BSUs — — 2,761 201,034

Alan R. Mulally Options 22,819 644,413 — —

BSUs — — 29,206 2,25 1,773

Performance Shares — — 173,574 14,346,275

Career Shares — — 26,951 2,15 5,293

MDSUs — — 21,103 1,67 8,915

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1. What are the main aggregated compensation items? New

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data.

2. Stock‐based compensation: how to identify a unique row.

Difference between the aggregated and disaggregated data

for restricted stock awards and option awards.

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3. How is Black‐Scholes computed?

4. How does it link to other data sets? i.e. Governance sets.

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1. Old Compensation Items

• Pre FAS 123 R: TDC1 & TDC2 were the two most

encompassing compensation measures.

– Using the 1992 format: TDC1= Salary +Bonus+ Other Annual + Total

Value Restricted Stock granted + Total Value Stock Options granted + Value Restricted Stock granted + Total Value Stock Options granted + Long‐Term Incentive Payouts + All Other Total

Using the 2006 format: TDC1= Salary + Bonus + Non Equity Incentive

– Using the 2006 format: TDC1= Salary + Bonus + Non‐Equity Incentive

Plan Compensation + Grant‐Date Fair Value Stock Awards + Grant‐date fair Value of Option Awards + Deferred Compensation + Other Comp.

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1. New Compensation Items: FAS 123(R)

• New compensation items are reported by companies. Hence

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only available from 2006 onwards.

– Total Compensation as Reported to SEC: (TOTAL_SEC) Salary, Bonus,

Stock Awards Option Awards Non Equity Incentives Pension and Stock Awards, Option Awards, Non Equity Incentives, Pension and Deferred Compensation Changes, Other Comp.

Cost recorded by the company on its income statement.

Total ALT1 same definition as TOTAL SEC except that stock &

– Total_ALT1 – same definition as TOTAL_SEC except that stock &

options are valued using grant‐date fair value . Compensation as of grant date.

T l ALT2 d fi i i TOTAL SEC h k &

– Total_ALT2 – same definition as TOTAL_SEC except that stock &

options are valued using stock vesting (SHRS_VEST_VAL) and value realized from option exercise (OPT_EXER_VAL).

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2. Stock‐based Compensation Items

2. Stock based Compensation Items

• Firms may grant options and restricted stock several times a year. Hence, this type of compensation is delivered at an aggregated or disaggregated level. • Aggregated variables: 1 record per (firm, co_per_rol, year) • Disaggregated variables: produce several records for (firm, co_per_rol, year). Need to add ID variable. – Before FAS 123 Options data GRNTNUM .p – FAS 123 Plan Based Awards table contains all disaggregated data. GRNTNUM applies for all types of awards reported in the table: i.e. shares , equity and non‐equity incentive plan awards and options. , q y q y p p And all of these plans can have several instances.

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2. Stock‐based Compensation: Options

2. Stock based Compensation: Options

• Stock options awarded during the fiscal year (executive level)

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– OPTION_AWARDS_BLK_VALUE (before FAS 123) – OPTION_AWARDS_FV (FAS 123, i.e. data from 2006 onwards) At company level? At company level? Companies do not report all stock options awarded to all employees. From the DEF14A filling can only be computed for executives.

• Options exercised during the fiscal year:

– OPT_EXER_NUM & OPT_EXER_VAL

• Options outstanding :

– OPT_UNEX_EXER_EST_VAL: Estimated value of in the money unexercised vested options. (OPT_UNEX_EXER_NUM) – OPT_UNEX_UNEXER_EST_VAL : Estimated value of in the money unexercised unvested options. (OPT_UNEX_UNEXER_NUM)

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Aggregated and Individual Options Data – Before FAS 123

Data from 1992‐2005 plus few companies still reporting old format for 2006 fiscal year. Available via Web‐query. All data items in Execcomp.

Aggregated Options data Individual Option data

CO_PER_R OL SALARY OPTION_AWA RDS NUM OPTION_AWA RDS_BLK_VAL UE OPTION_AW ARDS_RPT_ VALUE GRNTN UM NUMSECU

R BLKSHVAL EXEC LNAME YEAR

Aggregated Options data Individual Option data

OL SALARY RDS_NUM UE VALUE UM R BLKSHVAL EXEC_LNAME YEAR

28409 375 106.251 293.073 66.227 1 66.667 157.584 Jaworski 2006 28409 375 106.251 293.073 66.227 2 39.584 135.489 Jaworski 2006 30178 365.28 173.334 401.205 291.137 1 73.334 164.831 Whiting 2006 30178 365.28 173.334 401.205 291.137 2 100 236.374 Whiting 2006 32109 265.035 56.25 130.28 94.413 1 40 85.078 Deranleau 2006 32109 265.035 56.25 130.28 94.413 2 12.25 32.618 Deranleau 2006 32109 265.035 56.25 130.28 94.413 3 4 12.584 Deranleau 2006 32110 263.333 510.417 1217.435 1036.274 1 160.417 360.566 Grewal 2006 32110 263.333 510.417 1217.435 1036.274 2 350 856.869 Grewal 2006 OPTION_AWARDS_NUM: Total number of stock options awarded during the year, as detailed in Plan Based awards. OPTION_AWARDS_BLK_VALUE: Aggregate value of stock options granted during the year –valued using S&P Black‐Scholes Methodology. Applies to 1992 reporting format only. (OPTION_AWARDS_FV for FASB123 reporting) OPTION_AWARDS_RPT_VALUE: Aggregate value for all options granted during fiscal year as valued by company. Applies to 1992 reporting forma t only. GNTNUM: Grant Number Identifier (Stgrttab). NUMSECUR: Number of securities in the option grant. Applies to 1992 only. (Stgrttab). BLKSHVAL: Value of the option grant using the S&P modified Black‐Scholes Method. Applies to 1992 reporting format only (Stgrttab).

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Aggregated and Individual Options Data – FAS 123

Data for 2006 fiscal year only. Aggregated data available through Web‐query. Data for 2006 fiscal year only. Aggregated data available through Web query. Individual option data in Planbasedawards dataset. Details on individual options granted are reported in Plan Based Awards table. Date Approved by Compensation Committee Estimated Future Payouts Under Equity Incentive Plan Awards (a)

Al l Other Option Awards: Number of Securiti es Underlying Options (#) Exercise or Base Pri ce of Option Awards ($/SH) (b) Closing Market Price on Grant Date Grant Date Fai r Value of Stock and Opti on Awards Name Grant Date Target (#) Maximum (#)

OPTS GRT FAIR VALUE

H. McGraw III 4/3/06 12/07/ 05 25,140 50, 280 $ 2,906,687 4/3/06 12/07/ 05 196,058 $ 57.81 $ 57.51 $ 2,950,673 3/23/06 04/24/ 02 277,637 (c) $ 56.43 $ 56.64 $ 3,555,001 3/23/06 04/28/ 04 167,004 (c) $ 56.43 $ 56.64 $ 2,138,402 R. J. Bahash 4/3/06 12/07/ 05 12,233 24, 466 $ 1,414,379 4/3/06 12/07/ 05 46,990 $ 57.81 $ 57.51 $ 707,200 D. Sharma 4/3/06 12/07/ 05 7,551 15, 102 $ 873,047 $ $ $ OPTS_GRT FAIR_VALUE 4/3/06 12/07/ 05 29,003 $ 57.81 $ 57.51 $ 436,495 3/16/06 12/04/ 02 31,771 (c) $ 58.83 $ 59.05 $ 423,225 D. L. Murphy 4/3/06 12/07/ 05 7,551 15, 102 $ 873,047 4/3/06 12/07/ 05 29,003 $ 57.81 $ 57.51 $ 436,495 3/14/06 04/30/ 03 17,799 (c) $ 55.84 $ 56.42 $ 225,857 K. M. Vittor 4/3/06 12/07/ 05 6,872 13, 744 $ 794,541 4/3/06 12/07/ 05 26,395 $ 57.81 $ 57.51 $ 397,245 B. D. Marcus 4/3/06 12/07/ 05 3,460 6, 920 $ 400,045 4/3/06 12/07/ 05 13 289 $ 57 81 $ 57 51 $ 199 999 4/3/06 12/07/ 05 13,289 $ 57.81 $ 57.51 $ 199,999 GRNT_NUM: Identifies entry in table. Hence it can refer to any Equity and non‐equity plan! No longer count for number of options grants. When OPTS_GRT > 0, then entry corresponds to option grant. OPTS_GRT: Number of stock options granted Fair_Value: Grant date Fair value of stock and option Awards.

SUM(OPTS_GRT)= OPTIONS_AWARDS_NUM Total number of stock options awarded during the year. SUM(FAIR_VALUE)= OPTIONS_AWARDS_FV Aggregate value of stock options granted during the year.

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2. Stock Based Compensation: Restricted Stock

• Restricted Stock awarded during the fiscal year (executive

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level)

– RSTKGRNT (before FAS 123, only applies for 1992 format)

STOCK AWARDS FV (FAS 123 i e data from 2006 onwards)

– STOCK_AWARDS_FV (FAS 123, i.e. data from 2006 onwards)

• Stock vested during the fiscal year:

– SHRS_VEST_NUM & SHRS_VEST_VAL

• Restricted Stock Outstanding :

– STOCK_UNVEST_VAL : Aggregate market value of restricted shares

held by executive (STOCK UNVEST NUM) held by executive (STOCK_UNVEST_NUM)

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3. Black‐Scholes Option Valuation Methodology

3. Black Scholes Option Valuation Methodology

• The basic instrument used for the determination of a stock option's

estimated value at grant. estimated value at grant.

• The model features the input of six assumptions:

1. The exercise price, i.e., the price the executive must pay to exercise the option. Æ specified by company in proxy statement, and assumed to be the market price per share at the time of grant.

2. The term of the grant. Æ assumed to be granted on July 1st _{of the year for which data}

is reported and the actual expiration date as reported in proxy. Then, the term is reduced to amount a 70% of the full term since executives rarely wait until expiration.y p 3. The estimated risk‐free rate of interest during the term of the grant. Æ the

approximate average yield that could have been earned in the particular year by investing in a U.S. Treasury bond carrying a seven‐year term.

4 The estimated stock price volatility during the term of grant Æ Use a 60 month 4. The estimated stock price volatility during the term of grant. Æ Use a 60 month volatility number. If the stock has traded for less than one year, we input the average volatility value for the S&P 1500. 5. The estimated dividend yield on the stock during the term of the grant. Æ To measure i ld di id d i ld h i d past yields, we average dividend yields over a three‐year period.

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4. How to link ExecuComp.

• Few firm characteristics are directly provided. Still, easy to link

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,

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to Compustat Industrial by Gvkey.

• CRSP Pricing data: follow same procedure as any other

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d t

Compustat product.

– Use CCM to obtain Gvkey – Permno link. – Alternatively, use CUSIP to link both sets.