June 9, 2016

More on “Non-GAAP Measures: How They Boost CEO Bonuses”

With our webcast coming up this morning regarding “Non-GAAP Disclosures: What Is Permissible?” – here’s a note from a member commenting on this WSJ article that I blogged about yesterday:

– It is extremely rare for any company to use GAAP earnings for bonus calculation purposes (word searching “non-GAAP” probably missed the other 42% of companies that refer to adjusted EPS, adjusted revenue, etc.).

– Most incentive plan targets are based on operating results, which is why it is common to exclude non-operating items – like FX or asset impairments – from the bonus calculation. It is also common for some industries to exclude non-cash expenses, like equity compensation expense.

– Agree that some items should not be excluded from GAAP results when calculating incentive payouts – and there is typically a very rigorous process that management and the compensation committee use to evaluate what to exclude.

– Lay-off expenses are mentioned as an example of a bad adjustment to GAAP results for incentive plan purposes. If you are the board, would you want to provide management with a financial incentive to delay a lay-off or plant closure until next year to avoid a reduction in the current year’s bonus? I can think of many examples where the entire industry faced excess capacity and closing facilities was not anticipated at the beginning of the year. Most boards would want the management team to get out in front on an issue like that – and would be happy to reward them for doing so, rather than create a financial penalty. I recognize that paying big bonuses to management during large layoffs is not a good practice and should be avoided.

– Agree that if management wants relief from FX headwinds one year, they need to exclude FX tailwinds in future years.

FINRA Proposes Changes to Communications Rules

As noted in this memo, FINRA recently filed proposed revisions to its communications rules with the SEC that include a few substantive revisions to existing rules, eases some burdensome filing requirements and leaves the door open for future changes…

Sights & Sounds: “Women’s 100 Conference ’16”

This 1-minute video captures the sights & sounds of the “Women’s 100” events that just wrapped up in DC and Palo Alto:

Broc Romanek