How Verdicts Are Calculated

Our pay-for-performance verdicts (Aligned, Misaligned, Mixed Signals) analyze the relationship between executive compensation and shareholder returns. Here's how we calculate them:

Key Metrics

CAP vs TSR: We compare year-over-year changes in Compensation Actually Paid (CAP) against Total Shareholder Return (TSR). Pay should generally track performance.
Pay Ratio: We examine the CEO-to-median-worker pay ratio for context on pay magnitude.
Grant Timing: We flag potentially suspicious equity award timing patterns (e.g., grants before positive news announcements).
Governance: We check for clawback policies, insider trading restrictions, and other governance safeguards.

Severity Levels

We assign severity levels based on industry benchmarks:

Healthy: Pay moves in the same direction as stock and proportionally tracks performance.
Concerning: Pay outpaces stock returns by 1.5x to 2.5x, or shows minor misalignment.
Red Flag: Pay increases while stock declines, or pay outpaces stock by more than 2.5x.
Egregious: Severe misalignment, such as significant pay increases during major stock declines.

Research basis: Pay Governance peer alignment thresholds, ISS RDA and MoM standards. See Harvard Law Forum on pay-for-performance alignment.

Data Sources

All data is sourced from official SEC EDGAR filings:

DEF 14A (Proxy Statements): Primary source for U.S. company executive compensation disclosures, including the Summary Compensation Table, Pay versus Performance tables, and CEO Pay Ratio.
Form 20-F: Annual reports for Foreign Private Issuers (FPIs), with executive compensation disclosed in Item 6.
Form 4: Insider transaction reports filed within 2 business days of trades by executives and directors.
Form 144: Notice of proposed sale of restricted securities, providing early warning of potential sales.
8-K Item 5.02: Current reports disclosing executive departures, appointments, and compensation arrangements.

Stock price data is sourced from Yahoo Finance for Total Shareholder Return calculations.

Understanding Grant-Date Fair Value

All stock award and option award values shown on this site are grant-date fair values, not realized cash.

What This Means

Stock Awards: The value is calculated using the stock price on the day the award was granted, multiplied by the number of shares. If the stock price changes before vesting, the actual value received will differ.
Option Awards: The value is calculated using option pricing models (typically Black-Scholes), which estimate the expected value based on factors like stock volatility, exercise price, and time to expiration.

Why It Matters

An executive might receive a $10M stock award grant that ends up worth $5M if the stock drops, or $20M if it rises. The Summary Compensation Table reports the $10M grant-date value, which is why we also show Compensation Actually Paid (CAP) to reflect what executives actually received after stock price changes.

Example: If a CEO receives 100,000 RSUs when the stock is at $50, the grant-date fair value is $5M. If the stock rises to $75 by vesting, the actual value received is $7.5M. The SCT shows $5M; CAP adjustments capture the $2.5M difference.

Glossary of Terms

Key terms used throughout the site. Hover over terms on ticker pages for quick definitions.

Rule 10b5-1 Plan

(10b5-1)

Pre-arranged trading plan allowing insiders to sell shares during blackout periods. Must include cooling-off period and be established in good faith.

Rule 10b5-1 Pre-Planned Trades

(10b5-1)

Trades executed under SEC Rule 10b5-1 plans, which allow insiders to set up trading schedules in advance. These plans must include a cooling-off period and help insiders avoid insider trading accusations.

Form 20-F

(20-F)

Annual report for Foreign Private Issuers (FPIs) listed in the U.S. Item 6 contains executive compensation disclosure.

Compensation Actually Paid

(CAP)

SEC metric that adjusts Summary Compensation Table totals to reflect equity value changes and pension adjustments during the year. Unlike reported pay, CAP shows the actual economic value received.

Clawback Policy

(Clawback)

Company policy allowing recovery of executive compensation in cases of financial restatement or misconduct. Required by SEC for listed companies.

Tax Withholding (Sell-to-Cover)

(Code F)

When equity awards vest, companies automatically sell shares to cover tax withholding obligations. These are non-discretionary transactions (SEC Code F) and distinct from voluntary insider sales.

Definitive Proxy Statement

(DEF 14A)

Annual filing by U.S. public companies containing executive compensation disclosures, governance information, and shareholder voting matters.

Discretionary Sales Percentage

(Discretionary Share)

The proportion of insider sales that were voluntary choices versus automatic tax withholding. Higher discretionary percentages may indicate more intentional selling decisions.

Equity Rollforward

(Equity Rollforward)

A table showing outstanding equity awards at the start of the year, new grants, exercises/vesting, forfeitures, and ending balances. Provides visibility into total equity exposure.

Notice of Proposed Sale

(Form 144)

Notice of proposed sale of restricted securities. Filed when selling securities under Rule 144, often indicating planned insider sales.

Form 144 Planned Sales

(Form 144)

Form 144 filings indicate an insider's intent to sell restricted securities. These are planned future sales, not completed transactions. The actual sale may occur later or not at all.

Statement of Changes in Beneficial Ownership

(Form 4)

SEC filing required within 2 business days of insider transactions. Reports purchases, sales, exercises, and other changes in beneficial ownership.

Grants of Plan-Based Awards

(GPoBA)

SEC-required table showing award details including approval dates, target/threshold/max units, and grant-date fair values.

Grant Date Fair Value

(Grant FV)

The accounting value of equity awards on the date granted, calculated using valuation models like Black-Scholes. Used in Summary Compensation Table reporting.

Grant Reconciliation

(Grant Reconciliation)

Matching individual equity grants disclosed in Grants of Plan-Based Awards tables to the aggregate Stock Awards column in the Summary Compensation Table. Helps verify data accuracy.

Insider Trading Policy

(Insider Trading Policy)

Company rules governing when and how executives can trade company stock, including blackout periods, pre-clearance requirements, and 10b5-1 plans.

SEC Regulation S-K Item 402(v)

(Item 402(v))

SEC disclosure requirement mandating companies show the relationship between executive pay and company performance. Introduced in 2022, it requires a table comparing Compensation Actually Paid to TSR and other metrics over 5 years.

Named Executive Officer

(NEO)

Top executives disclosed in proxy statements, typically CEO, CFO, and next 3 highest-paid officers. Their compensation receives detailed disclosure.

Executive Confidence Score

(NEO Conviction)

An AI-generated score analyzing insider trading patterns, pre-planned trade usage, holding behavior, and stake retention to gauge executive confidence in the company's future.

Non-Equity Incentive Compensation

(Non-Equity)

Cash-based performance bonuses tied to company or individual performance metrics. Separate from equity awards like stock or options.

Stock Option Awards

(Option Awards)

Rights to purchase company stock at a predetermined price (strike price). Value based on Black-Scholes or similar valuation model.

CEO Pay Ratio

(Pay Ratio)

SEC-required disclosure comparing CEO total compensation to median employee compensation. A ratio of 300:1 means the CEO makes 300x the median worker.

Principal Executive Officer

(PEO)

The company's chief executive officer or person acting in a similar capacity. Receives special compensation disclosure treatment.

Performance Stock Unit

(PSU)

Equity award that vests based on achieving specific performance targets (e.g., revenue growth, TSR relative to peers).

Pay vs Performance

(PVP)

SEC disclosure requirement (Item 402(v)) showing the relationship between executive compensation and company financial performance over a 5-year period.

Realized Open Market Sales

(Realized Sales)

Actual completed sales of company stock by insiders, reported on Form 4. Excludes automatic tax withholding transactions (Code F) to show discretionary selling activity.

Restricted Stock Unit

(RSU)

Equity award that vests based on continued employment over time, not performance metrics. Typically 4-year vesting with 1-year cliff.

Summary Compensation Table

(SCT)

SEC-mandated table disclosing compensation for the CEO, CFO, and top 3 highest-paid executives, including salary, bonus, equity awards, and other compensation. Found in Item 402(c) of proxy statements.

Stock Awards

(Stock Awards)

Equity compensation granted as restricted stock or RSUs (Restricted Stock Units). Value based on grant-date fair value per accounting standards.

Total Shareholder Return

(TSR)

Total return to shareholders including stock price appreciation and dividends, expressed as a percentage. Measures investment performance over a period.

Vesting

(Vesting)

Process by which equity awards become owned by the recipient over time. Typically subject to continued employment (time-based) or performance conditions.

Year over Year

(YoY)

A comparison metric showing the percentage change between the current period and the same period in the previous year. Useful for understanding trends while accounting for seasonality.

Limitations & Disclaimers

Not Investment Advice: This site provides educational information about executive compensation. It is not financial or investment advice.
Data Accuracy: While we strive for accuracy, SEC filings can contain errors or be amended. Always verify important information with primary sources.
AI-Generated Content: Some analysis is AI-generated. While we validate outputs, automated analysis may contain errors or miss context.
Lag in Data: Compensation data is annual and disclosed 3-5 months after fiscal year end. Insider transaction data has a 2-business-day reporting lag.
Context Matters: Pay-for-performance alignment is complex. Our verdicts are simplified summaries that may not capture all relevant factors.

For legal terms, see our Terms of Service.