Camouflage Compensation

What Is Camouflage Compensation?

Camouflage compensation, otherwise called stealth compensation, alludes to pay or potentially benefits conceded to more elite class employees and senior executives that are clouded in nature or may not be uncovered plainly in mandatory company filings. This permits management to appreciate greater overall compensation secretly without raising concern among shareholders or different partners.

Generally, people who are granted such compensation are CEOs, directors, overseeing directors, and other high-level executives who receive it notwithstanding their normal salary, incentives, and advantages.

Figuring out Camouflage Compensation

Given the enormous growth of executive compensation throughout recent many years, camouflage compensation has certainly stood out of regulators, investors, and scholastics and calls have been made to reform the practice. A 2006 vote by the Securities and Exchange Commission (SEC) for expanded disclosure of executive compensation for specialists, directors, and employees was viewed as an essential step yet just a starting point.

At times of camouflage compensation, the compensation is completely unveiled yet so that it is extremely challenging for the average investor to unravel the true value of a singular's gross pay package. Such a compensation strategy might make it more straightforward for a company to draw in top ability yet may likewise set off cautions with regulators or shareholders, for example, people or large institutional investors, in light of the fact that it tends not to be linked to performance.

Special Considerations

A few types of camouflage compensation incorporate non-qualified deferred compensation plans, supplemental executive retirement plans (SERPs), stock options, stock appreciation rights, and share awards — all potential spots where compensation can be hidden from analysts and shareholders.

Camouflage compensation may likewise be executed through retirement payment packages, in some cases called a "golden parachute," in which an executive is conceded a liberal payment upon termination.

Camouflage Compensation Criticism

A 2005 study named "Executive Compensation at Fannie Mae: A Case Study of Perverse Incentives, Nonperformance Pay, and Camouflage**"** dissected the utilization of camouflage compensation and incentives at the government-sponsored enterprise somewhere in the range of 2000 and 2004. It distributed the accompanying discoveries connected with camouflage compensation:

• It will in general reward executives for reporting high earnings yet neglects to require the return of such compensation on the off chance that earnings were misquoted. Such a structure boosted the inflation of earnings.
• Fannie Mae's compensation structure gave rich rewards to executives who were pushed out due to disappointment. The expectation of such pay packages prompted hazardous behavior.
• Assuming executives retired after numerous long stretches of perfect service, the value of their retirement packages would be generally unrelated to their own performance.
• With its opaque disclosures, Fannie Mae clouded the reality and value of retirement packages paid to executives.

Highlights

• The purpose is to increase upper-level compensation while remaining unnoticed from shareholders or investors who may not support.
• The practice has been mocked by regulators, who rather favor greater transparency and disclosure of executive compensation.
• Camouflage compensation is conceded to a company's senior management, however which are blocked in financial statements to conceal their true nature or value.

FAQ

What Is an Example of Camouflage Compensation?

There are several forms of camouflage compensation, for example, certain fringe benefits that are challenging to assess. Companies can likewise increase executive compensation by permitting dividends to be paid on unvested restricted stock or stock option awards.

Is Camouflage Compensation Illegal?

In the event that a company stows away or doesn't completely reveal compensation, it could be viewed as an accounting abnormality and be illegal. If, in any case, compensation is rather clouded or made more hard to translate by the average investor, while possibly dishonest, is normally legal.

Why Is It Called Camouflage Compensation?

To be camouflaged is to be hidden from view to easygoing onlookers. Camouflage compensation is a form of executive compensation that, too, is hidden or clouded on a company's financial statements.