Camouflage Compensation

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Camouflage compensation refers to pay and/or benefits granted to upper-echelon employees and senior executives that are obscured in nature or may not be disclosed clearly in mandatory company filings. Some types of camouflage compensation include non-qualified deferred compensation plans, supplemental executive retirement plans (SERPs), stock options, stock appreciation rights, and share grants — all potential places where compensation can be hidden from analysts and shareholders. It published the following findings related to camouflage compensation: It tends to reward executives for reporting high earnings but fails to require the return of such compensation if earnings were misstated. Given the huge growth of executive compensation over the past few decades, camouflage compensation has gotten the attention of regulators, investors, and academics and calls have been made to reform the practice. In some cases of camouflage compensation, the compensation is fully disclosed but in such a way that it is very difficult for the average investor to decipher the true value of an individual's gross pay package.

Camouflage compensation is granted to a company's senior management, but which are occluded in financial statements so as to hide their true nature or value.

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What Is Camouflage Compensation?

Camouflage compensation refers to pay and/or benefits granted to upper-echelon employees and senior executives that are obscured in nature or may not be disclosed clearly in mandatory company filings. This allows management to enjoy greater overall compensation on the sly without raising concern among shareholders or other stakeholders.

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

The purpose is to increase upper-level compensation while staying under the radar from shareholders or investors who may not approve.

The practice has been derided by regulators, who instead favor greater transparency and disclosure of executive compensation.

Understanding Camouflage Compensation

In some cases of camouflage compensation, the compensation is fully disclosed but in such a way that it is very difficult 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 have the effect of setting off alarms with regulators or shareholders, such as individuals or large institutional investors, because it tends not to be linked to performance.

Special Considerations

Some types of camouflage compensation include non-qualified deferred compensation plans, supplemental executive retirement plans (SERPs), stock options, stock appreciation rights, and share grants — all potential places where compensation can be hidden from analysts and shareholders.

Camouflage compensation may also be executed through retirement payment packages, sometimes called a "golden parachute," in which an executive is granted a generous payment upon termination.