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Volume 20, No. 11 - Fair Value Reporting: A Financial Institutions Survey

A year ago, the FASB’s proposal for revamping financial instrument accounting was the burning accounting issue of the day. In the end, the FASB got singed by the fire. In the face of staunch opposition to the proposal from just about every quarter -preparers, regulators, and even investors - the FASB pulled in its horns and moved to a more IFRS-like stance, one that perpetuates amortized cost as the fundamental measure for financial instruments. 

    There’s a good chance that the FASB’s new-yet- old-fashioned approach may be re-exposed for comment: it’s much different than the May 2010 financial instruments proposal. One thing that’s unlikely to change are the quarterly fair value disclosures for financial instruments. In fact, they might be staked out parenthetically in the balance sheet - a much more investor-friendly treatment than their current burial in the footnotes.

       Whether they’re on the face of the balance sheet or tucked into the footnotes, there’s still information in them for investors to consider. What follows here is a survey of the differences between amortized cost and fair value for the 453 non-REIT financial institutions contained in the Russell 3000.


Volume 20, No. 7(R) - S&P 500 Executive Pay: Bigger Than...Whatever You Think It is


     It’s the time of year for proxy deliveries and shareholder meetings - and plenty of rhetoric about CEO pay. This  year, the“say on pay” proxy vote, and the separate vote on the frequency of future say on pay votes, have added something to the mix for pay-watchers. Shareholder choices alone won’t bring any direct action on pay, however. If directors fail to heed shareholder displeasure through their say on compensation, the directors themselves might become liable through the courts. While that could certainly bring about change, it’s a process that could take years to produce any real differences in the size of executive compensation awards.

    Shareholders might say “no” on pay awards more often, if they stopped focusing on only the CEO and studied all of the executive pay information available to them. The proxy statement discloses the compensation of the top five officers; even though that’s only a smattering of the total executive pay, it’s uncommon for investors to look at that cost in its totality. The top five officers are part of a CEO’s cadre of trusted executives; they’re at least a part of the total management team that breathes life into the shareholders’ collective assets. Consider them to be a major input into the production of shareholder returns, with a real cost, just like raw materials or any other purchased services. One difference: managers try to keep other production costs low - but for their own costs, they’ll employ swarms of consultants to justify higher pay.

    If investors thought more about the price tag on their managers - especially in comparison to the cost of other inputs of production - they might vote “nay on pay” every chance they get. In 2010, executive pay for just the top officers recovered strongly as the financial crisis faded into the rear view mirror. Here, some perspectives on just how big the total executive pay package has become in relation to other costs that produce income and shareholder returns.

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