Building a plan for executive net worth mistakes: reader mistakes

Errors in this field are unusual because they happen in the presence of evidence. The filings are real, and readers and compilers misread them in patterned ways. That is good news for anyone who wants to get it right, because a misreading can be corrected against the document itself.

What to take away

• Granted value and received value are different quantities and are constantly swapped.
• A holding in one company is a lower bound on assets, not a net worth.
• Absence of a disclosure is not evidence that nothing exists.

Reader mistakes

Reading the summary table as a paycheque. The largest components of reported pay are equity awards valued at grant under accounting rules. Awards vest later, under conditions, at whatever the shares are then worth. The SEC's glossary entry on executive compensation sets out what the category covers, and the gap between a reported value and money in an account is often the whole story.

Treating a shareholding as a net figure. A reported stake shows what a person beneficially owns in one company at a date. It does not net off borrowing, it excludes everything held elsewhere, and shares can be pledged as collateral without that being obvious.

Ignoring tax on vesting. When equity vests it is generally taxable, which is why sales frequently follow vesting dates. A reader tracking gross awards and ignoring this consistently overstates what arrived.

Assuming the disclosed company is the whole picture. Filings describe one employer relationship. Property, private holdings, other directorships and family arrangements are simply outside the scope of the document.

Comparing across countries as if the rules matched. Disclosure requirements differ substantially between markets in what must be reported, for whom, and how equity is valued. A comparison across regimes is a comparison of regimes.

Compiler mistakes

Adding several years of grant values into a career total. This sums accounting valuations rather than payments, counts awards that later lapsed, and ignores tax throughout. The general trouble with lifetime sums is on career earnings.

Pricing holdings at a convenient date. Anything traded moves. Choosing a valuation date without stating it lets the same holding produce noticeably different figures, and the choice is rarely disclosed.

Double counting equity. An award appears in the compensation table when granted and again in the ownership figure once vested. Compilers who pull from both tables without reconciling them count the same shares twice.

Treating an insider transaction report as a windfall. Sales by insiders are reported, as the glossary entry on Form 4 explains. Many are made under plans arranged in advance or to cover tax, and reading a reported sale as a discretionary cash-out misdescribes it.

Filling the gaps with a model and not saying so. The documented part covers disclosed pay and disclosed holdings. Everything else in a published executive figure is modeled, and articles rarely mark where the evidence stopped.

Assuming private-company executives are comparable. Most executives are not at companies with disclosure obligations at all. Their pay is private, and applying public-company patterns to them is invention dressed as inference. The occupation as a whole is described by the Bureau of Labor Statistics profile of top executives, which covers the great majority that no filing ever names.

The mistake underneath the others

Every error above comes from treating a compliance document as a biography. The filings were designed to let shareholders judge a board's spending decisions. They answer that question well. Asked what a person is worth, they answer a narrow adjacent question and stay silent on the rest, and the silence gets filled in by whoever is writing. The general version is on estimate methodology.

How to check an executive figure

• Find the filing named. If none is named, the figure was inherited.
• Establish which quantity is quoted: granted value, vested value, realized proceeds, or holdings.
• Find the valuation date for anything priced in a market.
• Look for any treatment of liabilities. There will not be one, and that tells you the figure is not a net figure.
• Check whether the same shares could be counted in two places.
• Ask what the article assumes about assets outside the disclosed company.

Six checks, a few minutes, and they will separate the documented part from the modeled part on any page in this genre. The way ranked tables compound these errors is on richest rankings, and what the documents do support is on executive net worth.

Common questions

Is a company's own filing ever wrong?

Filings are amended, and restatements happen. That is a reason to check the date and the version rather than to distrust them generally. They remain the strongest evidence anywhere in this subject.

Does a very large disclosed award mean the person became wealthy that year?

It means an award of that calculated value was made. Whether it vested, what the shares were worth when it did, and what tax was paid on it are separate questions with separate answers.

Is anything about a private company executive knowable?

Rarely, and usually only through litigation or a transaction that required disclosure for another reason. The default is that nothing is public, and an article that presents a figure anyway has not found one.