Tutorial: How to Use ERI's Executive Compensation Assessor

Transcription

1 1 1 Tutorial: How to Use ERI's Executive Compensation Assessor Welcome to ERI's Executive Compensation Assessor (XA). From now on in this tutorial, we'll refer to it by its abbreviation, XA. This tutorial is a step-by-step guide on how to use the primary features of XA. This tutorial covers: Starting and Navigating XA Topic 1: How to Start XA 1 Topic 2: How to Navigate XA 3 Topic 3: How the Main Tabs and Windows Work Together 6 A Sample Analysis Topic 4: How to Use the Individual Profile Tab 7 Topic 5: How to Use the Benchmark List Tab 15 Topic 6: How to Use the Survey & Proxy Analyses Tab 16 Topic 7: How to Use the Comparable Companies Window 22 Additional Features Topic 8: How to Use the Position Description Window Topic 9: How to Use the Valuations Tab 29 Topic 10: How to Use the Black-Scholes Tab Topic 1: How to Start XA If you installed ERI's Platform Library along with the Executive Compensation Assessor, then you will have an "ERI Salaries and Cost-of-Living" icon on your desktop: Click the "ERI Salaries & Cost-of-Living" icon on your desktop to run ERI's Platform Library:

2 2 ERI's Platform Library is a "Grand Central Station." This easy-to-use interface lets you quickly run ERI's Free Analyst Resources or any Assessor Series application, including XA, from one central location on your desktop. To run XA, click the Executive Compensation Assessor button: You or your technical support representative can manually create a desktop icon specifically for XA after installation:

3 3 In this case, you would simply click the XA icon on your desktop. Please note: XA's desktop shortcut should link to the application file named erixawin.exe. If XA is installed to your computer's hard drive, and the default installation path is used, then the full path for the shortcut is C:\ERI\ErixaWin\erixawin.exe. You may also select Economic Research Institute Executive Compensation Assessor from the Windows Programs menu (which will vary depending on your operating system): 1.2 Topic 2: How to Navigate XA Let's briefly look at the layout of XA: First, you should notice that, by default, XA opens with two main windows clearly visible -- one above the other:

4 4 Each window has (at the top) a caption bar: The main/top window's caption is "Executive Compensation Assessor" plus the appropriate edition information: The bottom window's caption is "Executive Compensation Assessor Position Description": However, if the Survey & Proxy Analyses tab (the third main tab of the main/top window) is selected, then there is a third window at the bottom:

5 5 HINT: To access and/or activate a window, simply click on it. Underneath the caption bar of the main/top window, there is a row of menus: Many of XA's functions and features are accessible from these menus. These menus also provide access to supplemental features such as documentation (Help menu), ERI's web sites (Internet menu), the position description editor (Description menu), and salary survey listings and survey population information (View menu). You are encouraged to click through each menu to review what is available. HINT: Some of the menus include functions for both the top and bottom windows (like File Print), while others are only for the main tab of the main/top window. For example, when the Survey & Proxy Analyses tab is active, the Edit Copy to Clipboard menu applies only to the main/top window and the position description window, but not Comparable Companies. However, nearly all features listed in the menus are also available for Comparable Companies. Please refer to the toolbars and/or

6 6 sub-tabs on the Comparable Companies' window for ways to access a variety of functions and features. The main/top window has a "top" row of tabs: These are the 5 main tabs of the application. In general, they represent the primary types of reports or analyses that are available. Simply click on a tab to move to that particular section of the application. The Comparable Companies window also has a row of tabs: The Select tab is where you create a list of comparable peer companies by doing a text search or creating a filter using Revenue, esic and Zip Code. The other tabs (with company names) provide quick access to up to 5 different organizations at one time. Instructions on how to use the Select tab is covered in Topic 7 22.) 1.3 Topic 3: How the Main Tabs and Windows Work Together As noted in the previous topic, the XA application includes three main windows, all three of which are opened by default when the Survey & Proxy Analyses tab is activated. The top window includes five main tabs. It's important to note that, while the five main tabs appear to be separate (and they are in some regards), the first three main tabs (Individual Profile, Benchmark List and Survey & Proxy Analyses) are designed to work together. The last two tabs (Valuations and Black-Scholes) are additional resources that do not interact with the first three tabs. The Position Description window will display the appropriate information for the position selected or highlighted in the main/top window. It does this for the first three main tabs (Individual Profile, Benchmark List and Survey & Proxy Analyses). The position shown on the Individual Profile table automatically changes when a new position is entered and highlighted on either the Benchmark List tab or the Survey & Proxy Analyses tab. This automatic change on the Individual Profile tab allows the user to quickly toggle back and forth between the Individual Profile tab (to research a specific position) and the other tabs (where the analyses involve multiple positions). Data That Affect Salaries selected for any of the three main tabs will automatically be selected for all three tabs. The Survey & Proxy Analyses tab is designed as a "stand-alone" compensation analysis tool. However, it also affects (or works with) the Comparable Companies window: The position highlighted in the table affects what dots appear on the graph. (Only dots representing unique organizations that reported the position selected will be shown.) The industry selected under Organization Data automatically modifies the default esic on the Select Revenue/Indust. tab. When a dot on the Graph of the main/top window is clicked, a new tab is automatically created for

7 7 that organization on the Comparable Companies window. HINT: By default, the Comparable Companies and Position Description windows are displayed in a reduced size mode. It is highly recommended that you enlarge these windows to better view the data and features presented. You can adjust the size of a window by clicking and dragging any of the four sides or by using the enlarge and minimize buttons in the top right corner: 1.4 Topic 4: How to Use the Individual Profile Tab The first main tab of the main/top window is Individual Profile. The Individual Profile tab has three dominant features: Compensation Table Data That Affect Salaries (Organization Data) Graph All three features are interrelated. The easiest way to explain the interconnection of the various sections and features is by walking through an example analysis. So let's begin! Select a Position Title Only one position title can be selected at any given time on the Individual Profile tab, and this position is key to the data displayed in the compensation table on the Individual Profile tab. To change the selected position, click the position title banner near the top of the tab: When you click the position title banner, the Enter New Position dialog is displayed. Click on a position in the list (the selected title will be highlighted, and the associated position description will display at the bottom beneath the green bar). Then click the OK button:

8 8 For the purposes of this tutorial, we'll select "Chief Operating Officer." HINT: You can increase the size of the bottom half of the Enter New Position dialog (so you can see more of the Position Description section) by clicking and dragging the green bar "up":

9 Or you can increase the size of the viewable position list, by clicking and dragging the green bar "down": 9

10 10 Organization Data Look at the bottom left corner of the main/top window and note that, under Data That Affect Salaries (Organization Data), the default area, industry, and size (revenue) are selected. For this sample analysis, we want to see data for companies in the Los Angeles area, that provide Health Care (SIC 8000), and that have around $75,000,000 in revenue. Click Data That Affect Salaries: This will open the Salary Adjustments dialog:

11 11 By default the field for "Location (city)" is highlighted. Simply start typing "Los An." This will open the Input City dialog. "Los Angeles, California" is now selected for us in the list. Click the OK button to select this city: Now select the ERI Standard Industrial Classification (esic) code appropriate for Health Care. To search for the proper esic code, click the Browse button in the "Industry" section:

12 12 This will open the Browse Industries dialog. In the Search for industry containing this text field, type "health care" and click the Search button: The industry "tree," displayed on the left-side of the screen, automatically expands and highlights the first code found with the words "health care" in the description: 80 - Health Care. This is perfect for our analysis, so click the OK button to accept esic code 8000:

13 13 This will take us back to the Salary Adjustments dialog again. With the correct area and industry selected, now all we have to do is select the appropriate organization size. In the Revenue field, please type "75,000,000" and then click the OK button: Now the compensation data in the Individual Profile / Base Salaries table, as well as the lines on the Annual Base Salaries Graph, are specific for Chief Operating Officer, Los Angeles, esic 8000 (Health Care) and a revenue of $75 million.

14 14 HINT: The Planning Date also has a big effect on the values shown in the table. By default, the Planning Date selected is the current date (according to your computer), and values in the table are trended to the computer's date. Each quarter, salary data stored in the XA databases is compiled for the "Data as of" date shown in the bottom left hand corner of the main/top window: The "Data as of" date is always the same as the quarterly release date (January 1, April 1, July 1, October 1). If the salary Planning Date differs from the Database Date, then the values in the table will be prorated to the Planning Date using the Annualized Salary Trend. Each time you work on your analyses, be sure to check the Planning Date, and modify it (set it to the desired common date) as needed. This is especially true if you work on a single analyses over multiple days. Please note that on the Individual Profile tab, in addition to base salary data, there are also sub-tabs for Total Compensation and Incentives:

15 15 Simply click on any of these sub-tabs, and the data that appears in the table and on the graph will automatically change. Now we'll move on to the Benchmark List window. 1.5 Topic 5: How to Use the Benchmark List Tab The second tab of the main/top window is Benchmark List. The Benchmark List tab also has 3 dominant features: Benchmark Listing Table (for side-by-side comparison of multiple jobs) Data That Affect Salaries (Organization Data) Graph Just like the Individual Profile tab, discussed in the previous topic, all 3 features are interrelated. Typically the Benchmark List tab is used to plan or audit pay for multiple positions at one location. You can enter up to 99 positions at a time. The Survey Mean (or Survey Median) salaries are automatically displayed. You also have the option of entering current pay data in the "Actual Present" column to compare your company's current pay practice to the local market pricing calculations. HINT: Click on the blue "Survey Median" text in the table to toggle to "Survey Mean" and vice versa. To select a position, simply double-click on a row in the "Position" column. The Enter New Position dialog will display. (How to select a position using the Enter New Position dialog is covered in Topic 4 7.) Then, type in the "Actual / Present" salary for any or all positions, and the "ERI Market Index" (or compa-ratio) will automatically be calculated for you. Note that the Survey Mean (or Survey Median) values are specific to the area, industry and revenue entered under Data That Affect Salaries:

16 16 Just like the Individual Profile tab, your Benchmark List tab analyses can be saved, printed, or copied to the clipboard for exporting to an external document like Microsoft Word or Excel. Please see the options available under the File and Edit menus. Now let's take a look at the last main tab, Survey & Proxy Analyses. 1.6 Topic 6: How to Use the Survey & Proxy Analyses Tab The Survey & Proxy Analyses tab was originally designed to be an easy-to-use table of Maximum Reasonable Compensation data for the top 6 positions in a company -- Chief Executive Officer, Chief Operating Officer, Executive Vice President, Chief Sales & Marketing Officer, Chief Financial Officer, and Chief Human Resources Officer. ERI has also incorporated the Comparable Companies window to expand the capabilities of the Survey & Proxy Analyses tab by providing access to actual Proxies and 10-Ks. (The Comparable Companies window is discussed in greater detail in the next topic, Topic For this topic we'll concentrate on the Survey & Proxy Analyses tab.) The Survey & Proxy Analyses tab has 3 dominant features: Maximum Reasonable Compensation Table Data That Affect Salaries (Organization Data) Graph Like the Individual Profile and Benchmark List tabs, all 3 of the Survey & Proxy Analyses tab's primary features are interrelated. The values shown in the table and on the graph are based on the Organization Data selected under Data That Affect Salaries. Also, the dots on the graph are specific to the position selected in the table. Like the Benchmark List tab, you can manually enter your company's actual pay practices directly into the table. Fill in the blank cells in the first row for any or all of the 6 positions. XA will auto-calculate the Total Cash Comp. and Total All Comp. values:

17 17 Then, compare your company's data to XA's Estimated Survey Mean or Median and the suggested Maximum Reasonable Compensation values. HINTS: Click on the blue "Survey Median" text in the table to toggle to "Survey Mean" and vice versa. Enter your company's data, select the Edit Edit Table Cell menu, and then type a value OR left-click the cell and type a value. Also like the Individual Profile and Benchmark List tabs, you can save, print, and even copy your analysis to the clipboard and then paste it into an external document. (Please review the options available under the File and Edit menus.) However, there are a few important differences in how the Survey & Proxy Analyses tab works versus the other 2 main tabs. The best way to illustrate those differences is to jump in and create an analysis. In Topic 4 7, we selected a specific area, esic code and revenue under Data That Affect Salaries -- Los Angeles, esic 8000 (Health Care) and a revenue of $75 million. Those selections are still applied when we select the Survey & Proxy Analyses tab: We could certainly change the Organization Data here, but let's leave it as is for now. In the screen snapshot above, note that the first position title in the table, "Chief Executive Officer," is selected/highlighted. Note how the lines and dots look on the graph. Now, let's select the second position listed in the table, "Chief Operating Officer," by left-clicking on the COO row once with the mouse pointer:

18 18 The dots and lines changed considerably, didn't they? That's because the graph is tied to the position selected in the table, and each dot in the table represents a unique company that has reported compensation data for the selected position title. HINT: You can modify the 6 position titles shown in the table by selecting from a list of alternate titles. With your mouse, double-click on any position title in the table to access the Enter New Position dialog, then select a new title. See Topic 4 7 for more information on how to use the Enter New Position dialog. In addition, you can increase the size of the table by temporarily "hiding" Data That Affect Salaries and the Graph. To do this, "uncheck" the View Organization Data and Graph menu: The result will be an easier-to-read table, showing more positions at one time:

19 19 For the purpose of this sample analysis, after you've reviewed the expanded table be sure to return it to its default setting -- make sure that the View Organization Data & Graph menu is "checked" and you can see the graph. Now let's look a little more closely at the graph. In its default "small graph" size, some of the dots are hard to see -- they overlap one another. However, we can expand the graph by using the Big Graph option. Click the Big Graph button near the top right corner of the graph: By using the Big Graph option, we can easily identify outlier dots -- companies that may be excessively compensating their executive(s).

20 20 What if we wanted to research one of the companies represented by a dot? It's easy. First, float your mouse pointer over the dot on the graph to get some quick information, including the actual salary, the trended salary update represented by the dot, as well as the company name for the actual salary:

21 21 Second, click the dot and a new tab for the company will appear on the Comparable Companies window. (The Comparable Companies window is displayed by default directly below the main/top window.) Scroll down the Summary Comp Table to find the record for the Chief Operating Officer:

22 22 To find out how to access Proxies and 10-Ks for a company, let's take a closer look at the Comparable Companies tab. 1.7 Topic 7: How to Use the Comparable Companies Window Please Note: The Survey & Proxy Analyses tab must be active on the main/top window in order for Comparable Companies to display. The Comparable Companies window was designed for raw data research. It is a tool you can use to develop a list of comparable peer companies, and then individually research those companies using Summary Comp Tables and downloaded Proxies and 10-Ks. Click to activate this window, and feel free to enlarge it by clicking the (We can always minimize it later.) button in the top right corner. HINT: If you accidentally close the Comparable Companies window, select the View Comparables menu on the main/top window. Please note that the Comparable Companies window displays a maximum of 7 tabs: the Select tab plus 5 additional company tabs and a Selected Graph Data Point tab. In the previous topic, we clicked a dot on the Survey & Proxy Analyses graph and a new tab for the company represented by the dot automatically appeared on the Comparable Companies window. However, we can also create company tabs by "checking" up to 5 organizations at a time in the Select tab's list. By default the Select tab is the active tab on this window. It's helpful to note that there are 2 main sections to the Select tab. On the left is the selected companies list, the list you'll choose from when deciding what companies you'd like to do more research on:

23 23 Companies shown are those that have been selected from the XA database based on the parameters entered on one of the sub-tabs on the right-side of the Select tab: Each of the sub-tabs on the right is designed to help you narrow down the list of companies, but in slightly different ways. Let's look at each tab individually, and continue our sample analysis. Revenue/Indust. Sub-Tab We've already narrowed the list of companies quite a bit by selecting an industry. (Note that the industry selected under Data That Affect Salaries esic is auto-selected for you in the Revenue/SIC industry search field.) Let's narrow the list further by making the revenue and zip code parameters more specific. (Note that, by default, the location selected under Data That Affect Salaries does not affect the ZIP Code field in the Comparable Companies field because the talent pool for the top 6 employees in an organization is national. To narrow the location, it is necessary to adjust the ZIP Code range in the Comparable Companies window.) Unlike the Revenue and Area parameters selected under Organization Data in the main/top window, here we can specify a range of revenue and zip code values. In the fields for a revenue between enter "1,000,000" and "150,000,000." Then change the fields for ZIP Code between and including to the zip code range for the Los Angeles, CA area -- "90001" and "91900." Then click the check box for

24 24 "Select the 5 closest matches:" Now we've really reduced the list! The only companies displayed are those with an esic that begins with "80," located within the Los Angeles, CA area, and having revenue of $1 million to $150 million: In XA, the companies are always sorted alphabetically. Text Sub-Tab The Text tab enables you to search for companies by name. This lets you quickly look up known comparables or competitors. (Please note: When it is the active tab, the Text tab overrides the filter parameters selected on the Revenue/Indust. tab. This means that companies that match the Text tab parameters will be listed regardless of revenue, esic or zip code.) For example, type the word "micro" into the Text search field, and click the Search button:

25 25 The list on the left changes to show all companies in the XA database having the word or word fragment "micro" somewhere in the company name: Download a Proxy or 10-K What if we wanted to review the raw data for one or more of the listed companies? We would start by "checking" between 1 and 5 companies in the list. Select a company in the list:

26 26 Note that once we "checked" the company (or "selected" it), a new tab with that company's name appears to the right of the Select tab: By default, this new tab displays the Summary Comp Table for the selected company. However, we could also download a Proxy or 10-K. Click the Load Full Proxy button on the toolbar. A pop-up dialog will show all years for which ERI has a proxy for the company. Scroll through the list and check the desired year, then click the Download button: The result is a fully searchable, printable proxy statement for the selected company and year:

27 27 Please review the tab's tool bar for other features and options: 1.8 Topic 8: How to Use the Position Description Window The third window that completes the XA application is the Position Description window. When the Individual Profile or Benchmark List tabs are active, the Position Description window is clearly visible below the main/top window. However, if the Survey & Proxy Analyses tab is active, then by default the Position Description window displays behind the Comparable Companies window, and it sticks out just enough to the right so that you'll see it: If you click on the edge of the window, it will move to the front and you'll be able to see it better:

28 28 HINT: By default, the Position Description window is displayed in a reduced size mode. It is highly recommended that you enlarge this window to better view the data and features presented. You can adjust the size of a window by clicking and dragging any of the 4 sides or by using the enlarge and minimize buttons in the top right corner: Also, if you accidentally close the Position Description window, select the Description Show Description menu on the main/top window. To print the position description, select the File Print menu on the main/top window, then "check" the option for printing the position description and click the OK button. You can also edit and save position descriptions. To enter editing mode, right-click anywhere on the description, then select the Edit Description menu: This will open the Editor:

29 Topic 9: How to Use the Valuations Tab Valuations is the fourth tab in the Executive Compensation Assessor. The Valuations tab (previously available from the Platform Library as the Valuations Assessor) provides instantaneous financial averages derived from the Internet, profiling the closest publicly traded corporations within a specified industry (SIC/PBA/NAIC), geographic (zip code) area, size dimension (assets or revenue) and/or year (any year 1994 to the present). Customized financial norms with 10-Ks are of interest to Investment Managers, Litigation Consultants, Board of Directors, Appraisers, Forensic Economists as well as Compensation Managers and Consultants. Please note: ERI's Platform Library is also required for Valuations.

30 Topic 10: How to Use the Black-Scholes Tab With an active Internet connection, this fifth tab in the Executive Compensation Assessor instantly gives you access to the web-based Black-Scholes calculator on ERI's website.

31 31 Please take a few moments to explore all options (formatting, saving, copying, etc.) available from the tool bar and menus. More Information For more instructions on the Executive Compensation Assessor software s uses and features, click on Help On Current Screen. ERI technical support files are also available online at In addition, ERI offers live subscriber training sessions on Thursday mornings. Visit our Conference Call webpage to sign up for a teleconference training seminar this month. This concludes the Tutorial: How to use ERI's Executive Compensation Assessor.