One way to look at what value shareholders are getting from an executive team is to compare compensation to a company’s overall market value.
“It is very important to put these packages in the context of the performance of the company,” said Ira Kay, a managing partner at consulting firm Pay Governance n New York.
The general rule is that the bigger the company, the more pay its executives receive. And while defining what is “fair” is subjective, it is possible to measure what is typical and what is outside the norm.
Across 106 Colorado companies trading on major exchanges, reported executive compensation represented about 0.42 percent of overall market value last year. Put another way, the top managers listed in proxies received 42 cents in compensation for every $10 in market value.
At StarTek, eight current and former executives claimed $5.3 million in pay, which represented 18.3 percent of the company’s market value of $46.7 million at the end of 2011. That works out to $1.83 of every $10 in market value.
Not far behind was Ascent Solar Technologies, where three executives reported compensation of $2.5 million, or 16.1 percent of the company’s year-end market value of 15.3 million, which works out to $1.61 for every $10 in value. Two of the executives are no longer there.
Other companies where executives “ate” a large share of the total market value were AspenBio Pharma, where compensation accounted for $1.30 of every $10 in value, and New Frontier Media, where $1.10 went to executives.
At another eight Colorado companies, executives claimed compensation that was between 5 percent and 10 percent of the company’s overall market value last year.
What the companies tended to have in common were sharp drops in share prices that deflated the overall market value. Part of the disconnect comes from timing.
The pay in a given year is usually based on how the company and the executive performed in the preceding year.
Typically, executives who don’t perform are either shown the door or won’t realize the full value of their reported compensation, Kay said. That’s because executive compensation is increasingly locked up in stock and option awards. At Ascent Solar, for example, 65 percent of pay was tied to restricted shares or stock options, which became worth much less after an 88 percent decline in the company’s stock price last year.
But that isn’t always the case. At StarTek, cash-based payments, including relocation expenses and a severance payout, accounted for nearly three-quarters of total compensation. StarTek didn’t return a call seeking comment.
0.42%
Portion of overall market value of 106 Colorado-based companies that went to executive compensation in 2011
