What Is Camouflage Compensation?

Camouflage compensation, also known as stealth compensation, refers to pay and/or benefits granted to upper-echelon employees and se💖𓆏nior executives that are obscure in nature or may not be disclosed clearly in mandatory company filings.

This allows management to receive greater o🍌verall compensatio♕n on the sly without raising the concern of shareholders or other stakeholders.

Generally, individuals who are awarded such compensation are CEOs, directors, managing directors, and other ꦅhigh-level executives. They ꧃receive it in addition to their normal salary, incentives, and perks.

Understanding Camouflage Compensation

Given the enormous growth of executive compensation since the 1990s, camouflage compensation has gotten the attention of regulators, investors, and academics. Calls have been made to reform the practice of providing outsized pay while at the same time making it difficult to identify.

A 2006 vote by the 澳洲幸运5官ღ方开奖结果体彩网:Securities and Exchange Commissio🉐n (SEC) in favor of expanded disclosure of executive compensation for consultants, directors, and employees was considered a necessary step, but only a starting point. 

In some cases of camouflage compensation, the compensation is fully disclosed. But it's done in such a way as to make it very hard for the average investor to decipher the true value of an individual's gross pay package.

Such a compensation strategy may make it easier for a company to attract top talent but may also set off alarms for regulators and shareholders (both individual and large 澳洲幸运5官方开奖结果体彩网:institutional investors). That's because it tends not to be 澳洲幸运5官方开奖结果体彩网:linked to performance.

Types of Camouflage Compensation

As noted, the moniker of "camouflage compensation" refers to the ability it gives companies to obscure it from analysts, shareholders, and others. Some types of camouflage compensation include:

• Non-qualified deferred compensation plans
• 澳洲幸运5官方开奖结果体彩网:Supplemental executive retirement p༺lanﷺs (SERPs)
• 澳洲幸运5官方开奖结果体彩网:Stock options
• Stock appreciation rights
• Share grants
• Retirement payment packages, sometimes called 澳洲幸运5官方开奖结果体彩网:golden parachutes
  

Criticism of Camouflage Compensation

A 2005 study entitled "Executive Compensation at Fannie Mae: A Case Study of Perverse Incentives, Nonperformance Pay, and Camouflage" analyzed the use of camouflage compensation and incentives at the government-sponsored enterprise between 2000 and 2004. It revealed th🔯e following criticisms about camouflage compensation:

• It tended to reward executives for reporting high earnings but fails to require the return of such compensation if earnings were misstated. This incentivized the inflation of earnings.
• Fannie Mae's compensation structure provided rich rewards for executives who were pushed out due to failure. The expectation of such pay packages led to risky behavior.
• If executives retired after many years of flawless service, the value of their retirement packages would be mostly unrelated to their performance.
• With its opaque disclosures, Fannie Mae obscured the fact and value of retirement packages paid to executives.

In addition, the Economic Policy Institute advised that the huge chasm between soaring compensation for upper-echelon corporate executives and the compensation for ordinary employees represents a glaring inequality. Most employees can't participate in the gains in economic growth when so much financial compensation goes to only certain high-ranking employees.

The Bottom Line

Camouflage, or stealth, compensation is compensation that isn't made plain in an upfront manner. Typically, its existence is buried within corporate financial statements, making it hard for stakeholders in a company to get the facts about what, for instance, a CEO is being paid.

Camouflage compensation, while criticized by many and seen as unethical by some, is legal as long ♕as it is disclosed.