U.S. companies that use non-standard numbers to calculate executive compensation are overpaying their top managers, according to a new research report.
U.S. companies that use nonstandard numbers to calculate executive compensation are overpaying their top managers, according to a new research report.
‘GAAP metrics are unreliable enough, so using non-GAAP metrics for compensation is really horrifying. This is a classic case of shoot the arrow at the wall and draw a target around it.’ Nell Minow, ValueEdge Advisors For shareholders, that’s bad news, as it means managers are being compensated at unjustifiably high levels, in some cases even when the company is losing money.
For more than 20 years, market participants and regulators have been in a tug-of-war over these non-GAAP metrics, which are also described as “adjusted” or “pro forma” by some companies. The researchers told MarketWatch that 24% of the companies in their sample with the largest positive non-GAAP adjustments based them on negative GAAP net income.
MarketWatch analyzed public companies’ recent use of metrics that adjust GAAP net income in earnings announcements and when calculating executive bonuses. Audit Analytics provided the raw data from 10-Ks and annual proxies filed with the SEC at the end of 2018.
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