How The AP and Equilar calculate CEO pay

For its annual survey of CEO pay, The Associated Press uses data provided by Equilar, an executive pay research firm.

This year, Equilar examined the regulatory filings detailing the pay of 323 CEOs. Equilar looked at S&P 500 companies that had filed statements with federal regulators between Jan. 1 and April 30. To avoid the distortions caused by sign-on bonuses, the sample includes only CEOs in place for at least two years.

To calculate CEO pay, Equilar adds salary, bonus, perks, stock awards, stock option awards and other pay components.

Stock awards can either be gifts of stock, meaning the CEO gets it right away, or “restricted” stock, meaning the CEO has to meet certain goals before getting it. Stock options usually give the CEO the right to buy shares in the future at the price they’re trading at when the options are granted. All are meant to tie the CEO’s pay to the company’s performance.

To value stock and option awards, Equilar uses the companies’ estimates on what those stocks and options could eventually be worth when the CEO receives the stock or cashes in the options. Their actual value in the future can vary widely from what the company estimates.

Equilar calculated that the median CEO pay in 2012 was $9.7 million. That’s the midpoint, meaning half the CEOs made more and half made less.

Here’s a breakdown of 2012 pay compared with 2011 pay. Because the AP looks at median numbers, rather than averages, the components of CEO pay do not add up to the total.

—Base salary: $1.1 million, up 4.4 per cent

—Bonus: $1.9 million, down 5.4 per cent

—Perks: $162,000, up 9.4 per cent

—Stock awards: $4.1 million, up 17.2 per cent

—Option awards $1.3 million, down 16 per cent

—Total: $9.7 million, up 6.5 per cent