Proxy published: 3/10/15

Annual meeting: 4/24/15

Both short term and long term incentives at AT&T, where CEO Randall Stephenson had reported annual pay of $23,984,315, raise concerns.

To qualify for a payout under the short-term incentive plan at least one of three predetermined performance thresholds must be met. This year the company failed to achieve target in either consolidated revenues or free cash flow, it did achieve the lower threshold level in those categories. In earnings per share AT&T achieved its target. Yet when these benchmarks are achieved the board maintains considerable discretion regarding actual payouts. The board will “consider performance against these and other Company and business unit metrics as well as individual performance.” Upon such consideration, despite the failure to reach target in revenue and cash flow, the AT&T board awarded Stephenson a bonus of $4.35 million, 92% of his target bonus of $5.3 million.  There is a significant gap between his target bonus and that of the other NEOs.

Performance share payouts were based on ROIC (Return on invested capital) to determined 75% of award, and TSR compared to S&P 100 for the remaining 25%.  The company failed to achieve its TSR goal, but the ROIC goal (which was not disclosed) was paid out at 113%. TSR goal allows payment at full target even if it underperforms median of other companies.  The threshold payment level is the 26th percentile, so some awards are paid out if AT&T just barely outperforms the bottom quarter of the comparator companies.

A study sponsored by the IRRC Institute published in November 2014 notes that a significant variation in pay is linked not to performance but to company market capitalization. The study found that: “Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven.”

To some extent a link between company size and pay makes intuitive sense: certainly someone running a start-up would expect to be paid less, and differently, than the CEO of a large, complex, multinational company. At a certain point in the S&P 500, however, almost all the companies are large, complex, and multinational. It is at that point where one can question whether executives are likely to leave Apple, Exxon Mobil, or Pfizer to join AT&T, and whether pay should so closely track market capitalization.

Discovery Communications

Proxy published: 4/3/2015

Annual meeting: 5/20/2015


As discussed on this blog before, sometimes a small figure in the footnotes can be symbolic and important. After I posted the original blog post I noted another unusual feature: the reimbursement for an executive and his family to come home early from a vacation.  This piece was picked up by the Wall Street Journal, which covered it here:  If you have time to read the comments, it is an interesting discussion on the institutional weaknesses that can be revealed in such a relatively small perk.



The highest compensation for any CEO this proxy season was reported last week for Discovery Communications’ CEO David Zaslav: $156,077,912.  This amount is approximately equal to the combined two highest paid CEOs last year (Oracle and Nabors), and nearly twice the second highest payment thus far for 2014 (Microsoft).  In fact, it is the highest CEO pay reported since Timothy Cook’s 2011 package at Apple.

It is particularly astonishing in light of recent stock performance, with one year TSR down 27.8%.  Only one of the 25 S&P 500 companies with one- year-TSR decline of 20% or greater, has disclosed pay that reaches even one tenth of Zaslav’s package (most are well under $15 million).

This complete pay for performance disconnect has many components, some of which – including salary of $3 million — were guaranteed in the 2014 renewal of Zaslav’s employment agreement. This figure includes stock awards valued at $94.5 million and options valued at over $50 million.  A portion of these awards are provided under the agreement, which extends his employment through 2019. Under the agreement he received 224,845 performance-based restricted stock units based that vested if he remained employed at the company through 2014 and met other undisclosed metrics. According to the proxy statement, “In February 2015, the Compensation Committee determined that the performance metrics had been achieved in full and the Sign-On PRSUs vested at 100%. The Sign-On PRSUs were paid out in shares 50% in 2015 and the balance will be paid out 25% in each of 2016 and 2017.”

In addition to compensation reported in the summary compensation table, Zaslav acquired 1.9 million shares on the exercise of Series A stock options realizing $81 million dollars in value. In addition, he acquired 314,258 stock awards on vesting, realizing an additional $26 million in value.

What insulates an executive with this sort of pay package? Well, it helps to have a billionaire on the board, and a complicated ownership and voting structure.  In Discovery’s case, billionaire John Malone controls 28.7% of the vote.  Zaslav and Malone recently signed an agreement that gives Zaslav the exclusive right to negotiate and purchase Malone’s shares should Malone choose to sell his stake in the company.  Given this, it is almost impossible for the say on pay vote to fail, but shareholders can still register their concerns.

American Express

Proxy published: 3/30/2015

Annual meeting: 5/11/2015

Kenneth Chenault, who joined the company in 1981 and became CEO in 2001, had total compensation of over $22,796,083 for 2014.  As in past years, a significant component of this pay was in equity awards ($12.5 million in stock awards, $2.5 million in options.)  He realized an additional $26 million in the exercise of 737,500 stock options, and $19 million through the vesting of awards.  Based on the ownership table, however, it is clear he did not keep the vast majority of the stock.

In 2015, Chenault had reported ownership of 965,624 shares of stock, up from 935,671 the previous year, but a small fraction of all the shares that had been awarded to him as compensation over his years of service.  A positive governance feature of American Express is that it requires that 50 percent of net shares based on restricted stock units earned under annual incentive awards be held for one year past retirement. It is unclear how many of the shares reported in the stock ownership table are those Chenault is required to hold.

Several of the red flags that placed American Express on our overpaid list had to do with the excessive and repeated equity grants. Despite a high continued level of awards and repeated exercises of options, Chenault owns fewer shares today than he did in 2009. In other words, equity awards for American Express’s CEO are factors in wealth accumulation rather than alignment.

It is also of interest that Chenault still has the right to purchase over a million options that were issued in 2009, in the midst of the financial crisis, with a strike price of $16 dollars.  The options granted the following year have a stock price of $38 dollars. The change in stock price over that year was not due to one executive or even the actions of one company, but larger economic factors. But Chenault and other executives benefited disproportionately from the recovery. (Shareholders who bought at the bottom of the market also did well, but shareholders who were simply riding out the market did not reap outsize gains.)

Finally, American Express has a generous perquisite program. Under a subtable on perquisite, the company reports personal use of aircraft for Chenault was $181,638, and “local and other travel benefits” of $23,377. At what point has an executive accumulated enough wealth that it would be reasonable to suggest that he, rather than the company and its shareholders, foot these charges?  Does he really need an extra $35,000 perquisite allowance? Can the company afford the optics created by such a situation?

American Express is in the news lately because beginning in 2016 it will end its special relationship with Costco.  (Costco members account for approximately 10% of American Express cards). Interesting to note in that context how much lower CEO pay, and particularly perquisite pay, is at Costco.

Chipotle Mexican Grill

Proxy published: 3/27/2015

Annual Meeting: 5/13/2015

Two Chipotle burritos means a lot of calories, and two CEOs means a lot of money. Despite shareholders opposition to pay at Chipotle in last year’s annual say on pay vote, the company’s two CEOs each received increased compensation: it rose to $28,924,270 for Chairman and co-CEO Steve Ells, and $28,153,203 for co-CEO Monty Moran. Ellis took home another $41 million through the exercise of stock options, which is, as they say, a lot of guacamole.

As noted in our report, in May 2014, shareholders of Chipotle Mexican Grill Inc. opposed the company’s CEO compensation package by 77% (23% supporting) in a say-on-pay referendum, one of the lowest levels of support received at any company. The vast majority of mutual funds voted against the say-on-pay proposal at Chipotle (55 of the 71 fund groups that reported votes on this resolution). There were eight fund families that had a split vote with some cast for and others against, and eight fund groups surveyed voted all their shares in favor of the say-on-pay proposal at Chipotle: Artisan, Berkshire, Federated, Harbor, Lord Abbett, Steward, TIAA-CREF, and Waddell & Reed.

The company made plans to alter its compensation recipe in response to the equivalent of the worst Yelp review ever, by:

  • Reducing grant date value
  • Moving from grants based on fixed number of shares to market value on grant date
  • Revising framework to base vesting on performance vs. restaurant industry peer group
  • Adopting three-year cliff vesting (subject to performance) to create greater alignment

The company notes, however, that “compensation decisions for 2014 were made early in the year, before we filed our proxy statement for the annual meeting and received the say-on-pay vote. Consequently, the amounts and awards reflected in the compensation tables beginning on page 64 reflect decisions made before the 2014 say-on-pay vote.”  In other words, the results of the changes will be in the 2015 package voted in 2016.

However, it should be noted that shareholders had been expressing dissatisfaction with the pay package at Chipotle’s for a number of years. In 2012, 79% of shareholders voted in favor of the proposal, a relatively low level of support, but the board decided that the response “did not warrant significant changes to our determinations of executive compensation.”  In 2013, the number declined again to 73%, and the phrase was repeated (with a bit more of a defensive preamble.)  The 2014 vote apparently did get the board’s attention, but may be too little, too late. Timely response to shareholders frustration should be as key as timely response to customers.

Say on pay is non-binding, but the company has a management proposal that is binding: shareholders will vote to approve the amended and restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan to increase the number of shares authorized for issuance and make other changes. A shareholder proposal later in the proxy characterizes the performance criteria included in the prior plan (and little changed for this one) “so vague or multitudinous as to be meaningless.”

In addition to increasing the number of shares, another significant change to the plan will be to allow consultants and advisors to receive equity under the plan – a feature that hints at the changing world of work.  In olden days (a few years ago), if you valued someone’s work enough to want to give them equity, you would actually hire them.

Also on the proxy menu this year are management proposals to remove plurality vote for directors and get rid of supermajority voting requirements. There’s a shareholder proposal on proxy access, and a number of proposals on compensation matters.

Compensation proposals call on shareholders to adopt a policy that all equity compensation plans submitted to shareholders for approval under Section 162(m) of the Internal Revenue Code will specify the awards to senior executive officers only that will result from performance. This policy shall require shareholder approval of quantifiable performance metrics, numerical formulas and payout schedules (“performance standards”) for at least a majority of awards to the senior executive officers.  An alternate proposal is offered with specific metrics that the company believes will be too restrictive.

An additional proposal suggests that “there shall be no acceleration of vesting of an equity awards granted to any named executive officer, provided, however, that the board’s Compensation Committee may provide in an applicable grant or purchase agreement that any unvested award will vest on a partial, pro rata basis up to the time of the named executive officer’s termination, with such qualifications for an award the Committee may determine.”

And another proposal calls on the company to “adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until reaching normal retirement age or terminating employment.”

Shareholders who feel the board acted too slowly on compensation changes thus have many ways to get that point across at this year’s meeting.

General Growth Properties

Proxy published: 3/5/2015

Annual meeting: 4/16/2015

The total compensation package for General Growth CEO Sandeep Mathrani is down from last year, but the board recently signed an astonishing employment agreement which guarantees compensation will rise again, considerably. It insulates the executive from performance failures, and may incentivize a future change in control that would allow Mathrani to reap astonishing rewards, whatever the outcome for shareholders.

In February 2015, before a prior agreement expired, the company entered into a new employment agreement with Mathrani for an initial five-year term beginning January 1, 2015. Employment agreements for CEOs have become rarer, and any 5 year agreement – particularly one the company cannot fail to renew without incurring consequences – would be problematic, but several components of this agreement are of particular concern.

For example, the agreement not only provides for annual salary ($1.2 million) and target bonus ($3 million), but “a guaranteed minimum annual bonus of $2,000,000” for 2015 and 2016. In addition, under the agreement Mathrani was granted $25,000,000, “in the form of restricted shares of Common Stock or LTIP Units, at the election of Mr. Mathrani, which vests in full on the fifth anniversary of the Commencement Date.” Given that this award was made in 2015 it doesn’t show up in the summary compensation table, but shareholders should consider it as they evaluate the pay package they are voting on.

If the company terminates Mathrani’s employment without “cause” or does not renew the 2015 Employment Agreement following the initial term, or if Mr. Mathrani terminates his employment for “good reason,” . . . then Mathrani would receive two years of salary and “two times his annual bonus for the previous year.” Given the guaranteed minimum bonus, if the agreement is broken in 2017, the bonus would be $4,000,000 minimum.  He would also receive full vesting of the $25,000,000 award and “two years of welfare benefit continuation.”  Definitions for good reason include: “reduction of the Executive’s salary,” or “the relocation of the Executive’s principal place of employment to anywhere other than the Company’s office in New York.” Likewise, if employment “is terminated due to death or disability,” then he is eligible to receive a partial bonus, as well as full vesting of all awards.

In addition, under the agreement,  Mathrani’s annual Awards commencing with the 2015 fiscal year and the LTIP Units granted on February 12, 2015 vest upon a change of control. Under pressure from shareholders many companies have moved away from such vesting.  It creates a situation where if the requirements of long-term incentive payment become too challenging to achieve – perhaps due to external factors – the executive has a reason to push for a sale of the company at any price. With the agreement, the long-term incentive for Mathrani may have been separated from the long-term interests of shareholders.

Under the employment agreement, if this package qualifies as “excessive” under IRS definitions, incurring serious tax consequences for the company and the executive, the company and shareholders will foot the bill.  This payment, known as a gross up, was once a more common practice, but faded quickly as they became harder to justify, and the idea that such features were necessary because peers were doing them became a mirage.

Here’s the language from the agreement:  if payment “would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to Executive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Executive’s adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made.”

In English: they/we are going to pay him and pay him and pay him until it is as if the tax limit were not triggered at all.

It should be noted that pay at General Growth has been criticized by shareholders as excessive for some time. As noted in the proxy, “The aggregate annual compensation paid to Mr. Mathrani fell between the median and 75th percentile of the peer group.”  The peer group itself includes larger companies, and three that appear on our “overpaid” list, so paying on the high side of these peers is particularly troublesome. Now the new agreement gives shareholders even more reason for concern.


Proxy published: 3/25/15

Annual meeting date: 5/6/15

CONSOL Energy is another S&P 500 company in the midst of an executive transition.  Following last year’s annual meeting Nicholas Deluliis began as CEO; former CEO J. Brett Harvey assumed the position of executive Chairman.  In 2014, total disclosed compensation for Harvey was $15,061,360 and was $8,326,097 for Deluliis.  As executive chairman, Harvey received a salary of $750,000 as well as additional compensation. While this represents a reduction from his CEO salary, many shareholders are concerned with the practice of paying a former CEO to be an executive chairman. In addition, his employment agreement “provides service credit for eleven additional years of service for purposes of [the company’s] supplemental retirement plan,” a practice that inflates pension earnings and is now rarely seen.

We note, however, that Harvey retired from the executive chairman role effective January 2015, and that the company has no additional employment agreements.

The company made major changes to its annual incentive plan in 2014, “largely in response to certain shareholder comments that our program was too subjective and insufficiently based on our financial results.”  While in general we concur that objective, disclosed measures are preferable to subjective ones, it is critical that when such changes are made, the measures be appropriate.  That is particularly important in the quickly changing energy industry.

At CONSOL short term incentive is based 50% on coal performance, and 50% on gas performance. The compensation committee states that among changes it made to the program are “an increased emphasis on production, operating cost, and reserve replacement.” We had initial concern with the “reserve replacement” term – as there is a real risk of stranded assets in high cost, high carbon coal reserves (see As You Sow’s shareholder proposal in the proxy statement.)  However, further review showed that particular replacement metric is only for gas reserves, where it is more appropriate.  The two primary metrics under coal are production and operating cost. We note as well that environmental and safety metrics make up nearly a third of the metrics on coal, goals which seem appropriate. These appear to be appropriate metrics.

Applied Materials

Proxy published: 2/18/2015

Annual meeting: 4/2/2015

Applied Materials did not appear on our recent report of overpaid CEOs, but with a $6 million increase in total disclosed compensation in 2014, they may make the next edition.  Total disclosed compensation for President and CEO Gary Dickerson was $16,425,005 for 2014, compared to $10,409,369 the prior year. The primary concern, however, is the departure in the manner of pay.  This year, the CEO received no option awards or stock awards, but his annual non-equity incentive increased from $1.5 million to $14.9 million.  This increase was largely due to the decision by the compensation committee to pay “cash-settled performance units” rather than equity awards used in prior years, a move it made in part to alleviate some tax burden for the executives.

In determining the extent of these awards the committee considered the fact that “there was no potential for the NEOs to be rewarded for any increases in stock value that would have been possible if the awards were equity-based.”  Justification for large equity grants as a component of CEO pay routinely notes that such awards are “at risk” if stock price goes down, and such potential is carefully calculated in determining award size. This is a reverse of that more common argument: there’s no upside so the company needs to pay more cash.  The cash-settled performance units will vest over three years, initially conditioned on the fact that Applied achieve “an annual adjusted operating profit margin of at least 10% in any one of fiscal years 2014, 2015 or 2016.” The company achieved that goal in 2014, so these payments are now guaranteed.

Dickerson’s compensation was higher than the compensation committee’s already generous benchmarking guidelines. The company notes that in 2014, compensation for Dickerson was above the 75th percentile of peer companies, but that this was appropriate given the challenges that included “planning for the successful closing of the Business Combination and leading post-close integration, and the continued demands of running our business.”

The compensation committee targets annual compensation at the “50th to the 75th percentile of Applied’s peer group for each of these NEOs’ total direct compensation.”  Such benchmarking contributes to spiraling upward increase of executive pay.  If no company ever pays below average – even the 49th percentile — in executive compensation, then such compensation can only increase, regardless of performance or external factors.

Bristol-Myers Squibb

Proxy published: 3/25/2015

Annual meeting: 5/5/2015

The board made several changes in its compensation practices in addition to the announced leadership transition. CEO Lamberto Andreotti, in his final year as CEO, received total compensation of $27,062,382.

In May, COO Giovanni Caforio will become the CEO and Andreotti will become the Executive Chairman of the Board, with the same salary and bonus opportunity through August 3, 2015.

Generally shareholders frown of having a paid executive chairman as well as a CEO, as this can result in high level of payments.  We note however that this position is defined and time limited so less problematic.

However, it appears that as part of the transition it appears that incoming-CEO Caforio will receive two major long term incentive awards this spring, one in March for his current role of Chief Operating Officer and one in May for his new position of CEO. Shareholders may have concerns about what appears to be pay for two positions.

The compensation committee took a number of other action this year. In an effort to simplify their performance share unit (PSU) Awards the company moved from having three three-year over-lapping tranches to a single annual performance period. The company states that the 3-year vesting and the introduction of a relative 3-year TSR modifier will serve the goal of “preserving and enhancing the long-term nature of the award.”

The company added a “pipeline metric” to its annual bonus plan.  Of the three metrics for the annual bonus this was the one achieved at the highest level. This metric replaces the prior cash flow metric and, according to the company, “incorporates both quantitative and qualitative elements.” The metric “measures the sustainability and output of our R&D pipeline portfolio.” It is comprised of goals in two categories, Near-Term Value (Regulatory submissions and approvals for new medicines and marketed products in U.S., EU, and Japan) and Long-Term Growth Potential (development candidates, first in human, proof of confidence, registrational study stats).”

This metric appears to be a positive step toward focusing executives on long-term sustainable growth.

Ameriprise Financial

Proxy published: March 20, 2015

Annual meeting: April 29, 2015

The $24,455,192 reported in the summary compensation table as total disclosed compensation for Ameriprise CEO James Cracchiolo represents only a portion of the amount he took home. Much larger figures can be found in the table titled Option Exercises and Stock Vested in 2014, with realized gains of over $80 million. At the same time, Cracchiolo’s total ownership at the end of FY 2014 was less than at the end of 2013.  According to the stock ownership table he owned 150,000 less shares despite the million shares of options exercised.

As we noted in our report on overpaid CEOs in the S&P 500, Ameriprise’s proxy statement published in 2014 states that the compensation “committee does not consider gains or losses from long-term and equity incentive awards made in prior years, such as stock option exercises and restricted stock vesting, in determining new incentive awards. The committee believes that reducing or limiting current stock option grants, restricted stock awards or other forms of compensation because of prior gains realized by an executive officer would unfairly penalize the officer for high past performance and reduce the motivation for continued high achievement.” The identical language appears in the current proxy.

Apparently this fear of motivation loss has been going on for a long time. A look back shows that a version of this phrase has appeared in the proxy for many years, despite changing circumstances.  In 2014 alone, Cracchiolo exercised over a million shares and recognized over $70 million in value.  He apparently did not keep these shares.  The Ameriprise proxy is a great example of the problem with repeating language in the proxy every year. The rote language that the committee uses, appeared in the proxy published in 2009 with an addendum, “It should be noted that the named executive officers have not realized any gains on options awarded since spin off, and that these outstanding options do not currently have any intrinsic value or market gain as of the end of fiscal year 2008.”

That sentence was taken out in 2010 the sentence and replace with,  “In fact, many of these outstanding vested options do not currently have any intrinsic value or market gain as of the end of fiscal year 2009.”

Over the past several years, the intrinsic value increased markedly, and well beyond original estimates. This phenomena is widespread as options given at the bottom of the market now provide great wealth, and was covered in a March 25 Reuter’s analysis.  Options can create windfalls for executives based on market forces they do not control.  Ameriprise option grants from 2008 had strike price of $52.86, the options granted in 2009 had a strike price of $21.34 cents. This obviously reflects the financial crisis. The grant date fair value of the 1,028,000 shares awarded in 2009 was $9.1 million. What were those options ultimately worth? To fully understand how much Cracchiolo has received in from cashing out equity over the years would require a careful analysis of Form 4s, as well as the stock holding table.  What shareholders are able to more easily ascertain is that the equity compensation paid by the company is excessive.

The continuous equity awards do not create alignment, nor are they long term focused (in fact at Ameriprise, they are unusually short term, with three year vesting periods of 33% each year.)  Yet in 2014, Cracchiolo received yet another option grant of shares valued at over $4 million, and awards of another $4 million.  Apparently the board continues to fear a loss of motivation.

Prudential Financial

Proxy Statement Published:  March 24, 2015

Meeting Date: May 12, 2015

The total reported compensation for Prudential CEO John Strangfeld in 2014 was $37,483,092.  Over half of that amount – upwards of $20 million – is reported as change in pension value.  The footnote for that column begins with a sentence of 166 words, the sort that makes the most intrepid and committed reader decide it is time for another cup of coffee. The bottom line, is that for 2014 Prudential, like many companies, face steeply higher numbers in this category.  See this important Wall Street Journal article for more on the topic.

One factor behind such increases, appear to be changes in actuarial tables that estimate how long individuals are likely to live, the mortality rate assumptions “with white collar adjustments.” Under the sort of pension that many Americans used to have, and many executives still do, retirees receive a guaranteed fixed payments each month. The individuals most able to reasonably save for their retirement still receive defined benefit plans. If the latest actuarial data shows that one is likely to live a longer period of time, then additional money must be set aside.

One may wonder, how much longer Strangfeld is expected to live, given that the changed assumption results in a $20 million one year increase. (Remember as well, that the money set aside is expected to earn some rate of return in the years prior to his retirement, and subsequently.)  According to tables later in the proxy statement the present value of Strangfeld’s the current value of the largest of Strangfeld’s three retirement plans is over $75 million.  In addition, Strangfeld has been deferring compensation – a tax-favorable savings mechanism available to executives – and has over $9 million in his deferred compensation account.  One final note on the deferred compensation is that a small portion of the total figure is due to guaranteed above-market interest.  The fact that this component is so small makes it even clearer that it is unnecessary.

The other category of pay that increased under the summary compensation table was Strangfeld’s non-equity incentive pay, which was $9 million in 2014, compared to $3 million in 2013 (though in 2013 he received additional funds under his bonus).  The compensation committee reports that his target award was of $5.6 million, with maximum of $11.2 million.

The compensation committee states that, “Based on the Final Performance Factor and the Committee’s evaluation of his performance, in February 2015, the Committee recommended, and the independent members of our Board approved, an annual incentive award of $7,800,000 for Mr. Strangfeld for 2014, or approximately 1.39 times his target award amount.”

It is exceedingly difficult for a shareholder to evaluate whether such a bonus is in line with results given the proxy disclosure.  One complicating factor: Prudential uses adjusted operating income (AOI) a non-GAAP measure, rather than GAAP Net Income.  GAAP, for those fortunate enough to be unfamiliar with the acronym, stands for Generally Accepted Accounting Principles.  They are generally accepted for a reason, and whenever a company strays from them – putting an extra burden on shareholders to understand the rational – the plan deserves a closer look.

An example of clearer disclosure – though not necessarily a better bonus plan — can be found in our analysis of AFLAC.