The purpose of this exercise is to get you familiar with the amount of money made by a senior executive (the CEO), the mix of compensation received, and the basis for bonuses. You will use two databases: a list of the Fortune 200 (on Sakai) and Edgar, a database of financial statements maintained by the SEC (Securities and Exchange Commission).
The URL for Edgar is http://www.sec.gov/edgar/searchedgar/companysearch.html.
Step one: Look at the list of the Fortune 200 companies. Find a company starting with the same letter that is the start of your first name (as on the roster). If there is not a company starting with the letter starting your first name, choose a company whose name starts with the same letter as the second letter of your first name. If you choose a company that does not meet these requirements you will receive no credit for this exercise.
Step 2: Go to EDGAR and type in the name of the company you have chosen (in the Company Name box under “Enter your search information.” You will be taken to a list of companies with that name. Here is the tricky part. Many subsidiaries will be listed and it is not always easy to tell from the name alone which is the parent company. You can narrow down the possibilities by finding the one with a SIC (Standard Industrial Classification) code.
An alternative way to get to the right report is to go to http://www.nasdaq.com/screening/companies-by-name.aspx?letter=A. Click on the letter that starts your company name. The site will take you to a listing of all publicly-traded companies with names beginning with that letter. Go through these until you find your company. Get the symbol of the company. Go back to Edgar and do a “Fast Search” on the ticker symbol. The listing you get will show only the corporate reports with no reports of subsidiaries.
Click on the CIK (far left column); this will take you to the list of financial reports filed with the SEC. The report you are looking for is the 14A. In some cases “14A” will be preceded by DEF. This means it is the definitive Schedule 14A, or Proxy Statement. It is the proxy statement that contains the executive compensation report. There is usually a blue type table of contents – you can click on any part of it and that will get you directly to the right place. Please print the executive compensation section and turn it in with your report.
Check the amount of money made by the CEO. If the CEO was not paid or received $1 in pay, choose another company. In some corporations the CEO is one of the founders and owns a significant part of the corporation. Income in this case comes from capital appreciation of their shareholdings and from dividends.
Assignment: To turn in
Answer the following questions: (Answer in terms of the latest year – 2015.) Don’t forget to attach an electronic copy of the executive compensation report to your assignment before you submit it to the dropbox on Sakai. Make sure you answer all parts of each question.
- What are the components of CEO pay? What percentage of pay is base pay? What percentage is bonus? What percentage is from stock options? What percent is restricted stock? Other?
- What is the range of bonus available to the CEO? (Threshold, target and maximum bonus as percent of salary may be given.)
- What are the metrics used to determine bonus? What specific performance measures are used?
- How much company stock must the CEO own? (This is usually given as a multiple of salary; the typical number is 5 times salary.)
- What were the components and total compensation of the CEO?
- What were the key components of “All other compensation?”
- What is the present value of accumulated benefits for the CEO? (There may be multiple components.)
- How much severance payment will the CEO get if terminated? If terminated in connection with a change of control? On retirement? Due to death?
- Do you think the CEO of “your organization” makes too much? Why?/Why not?
- Should the government set limits on how much a CEO should make, or leave it to Boards of Directors and shareholders?