Summary compensation table

Definition

A summary compensation table is a standardized format used in financial reporting that provides a comprehensive overview of the compensation awarded to key executives in an organization over a specified period. This table typically includes various components of compensation, such as salary, bonuses, stock awards, and other incentives, allowing stakeholders to evaluate the total remuneration package of executives and its alignment with company performance.

5 Must Know Facts For Your Next Test

1. The summary compensation table is mandated by the SEC for public companies to promote transparency in executive pay practices.
2. It typically includes information for the last three fiscal years, allowing for easy comparison of executive compensation over time.
3. Compensation components in the table often include base salary, bonus amounts, stock awards, option awards, and other forms of compensation.
4. This table helps investors assess whether executive compensation aligns with company performance and long-term shareholder interests.
5. Changes in regulations can affect how information is disclosed in the summary compensation table, reflecting evolving standards in corporate governance.

Review Questions

• How does the summary compensation table enhance transparency in executive compensation?
  • The summary compensation table enhances transparency by providing a clear and standardized format that outlines the various components of executive pay. By including details such as salary, bonuses, stock options, and other incentives, stakeholders can easily understand what executives are being paid. This transparency allows investors and analysts to assess whether the compensation is justified based on company performance and aligns with shareholder interests.
• Discuss the implications of changes in regulations on the presentation of information in the summary compensation table.
  • Changes in regulations can significantly impact how companies present information in their summary compensation tables. For example, new SEC rules may require additional disclosures regarding performance metrics or the rationale behind specific compensation decisions. These changes aim to improve clarity and accountability regarding executive pay practices. Companies must stay compliant with these regulations to maintain investor trust and adhere to best practices in corporate governance.
• Evaluate the role of the summary compensation table in influencing corporate governance and executive accountability.
  • The summary compensation table plays a critical role in influencing corporate governance by holding executives accountable for their pay relative to company performance. By providing detailed insights into how much executives earn and how those earnings are structured, shareholders can better gauge whether executives are incentivized to act in the best interests of the company. This evaluation fosters a culture of accountability where boards must justify their compensation decisions based on objective performance criteria, ultimately promoting more responsible management practices.

Related terms

Executive Compensation: The financial and non-financial rewards given to executives, including salaries, bonuses, stock options, and other incentives.

Form 10-K: An annual report filed by public companies with the SEC that provides a comprehensive overview of the company's financial performance and includes executive compensation details.

Proxy Statement: A document sent to shareholders prior to a company’s annual meeting that includes information on executive compensation and other matters requiring shareholder votes.