Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Camouflage Compensation

What it is:

Camouflage compensation is compensation that is not fully disclosed or is hard to identify.

How it works (Example):

Let's say Company XYZ needs a new CEO. CEOs in the industry typically earn at least $1 million a year in compensation. Company XYZ's board is concerned about disclosing to shareholders that the old CEO made $200,000 and now they have to quintuple the cost.

Accordingly, Company XYZ develops a camouflage compensation plan whereby it offers the new CEO $250,000 a year but throws in $250,000 of deferred compensation, $100,000 of bonuses, and $400,000 worth of stock options. Although these items are all disclosed in the company's annual proxy statement, the compensation is likely to attract less attention because it is disclosed in pieces and because not all of it is cash.

Why it Matters:

Companies often find themselves caught between paying the going rate for good leaders and telling the shareholders that they're paying someone a lot of money. This creates an incentive to offer leaders an artificially low annual salary and add stock options, deferred compensation, expense accounts, phantom stock and other vehicles that bring the leader's pay up without drawing attention to the total amount paid.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...