New Zealand shareholders need to be wary of executives using non-standard accounting measurements to justify their pay packets, an Otago University survey has found.

University researchers said their study, titled "Non-GAAP Disclosure and CEO Pay Levels," shone a light on the association between chief executives' pay and unusual financial disclosure strategies.

"We found that higher levels of CEO compensation are associated with a greater likelihood of non-GAAP (Generally Accepted Accounting Principles) profit disclosure," co-author, Dr Helen Roberts of Otago's department of accountancy and finance, said.

"For example, there is a 69 per cent increase in non-GAAP disclosures when we move from the median CEO cash compensation level to the upper quartile of our sample, after controlling for firm size and other factors," she said.

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Separating the sample into four groups by firm size, the ratio of disclosure to non-disclosure firms was consistently higher for CEOs earning above compared to CEOs earning below the median pay level within each size grouping.

"We also see an increase in the frequency of non-GAAP disclosures and an increased likelihood of non-GAAP disclosure when a CEO changes," Roberts said.

"A lack of reconciliation between GAAP and non-GAAP profits also has a direct relationship to CEO cash compensation," she said.

Co-author Dr Dinithi Ranasinghe said the research prompted questions around the motivation for companies to use non-GAAP methods in their financial disclosures.

"The findings also show that managers are more likely to use these non-GAAP disclosures when their GAAP earnings benchmarks are missed," Ranasinghe said.

"Firms experiencing a decrease in earnings demonstrate a stronger association between CEO cash compensation and the likelihood of non-GAAP disclosure.

"This suggests some managers may be disclosing these measures with opportunistic intentions. Looking at the trend in the use of non-GAAP measures from 2004 to 2013, firms with a loss show a greater use of non-GAAP disclosures, increasing from 33 per cent to 70 per cent, compared to a shift from 53 per cent to 57 per cent for firms reporting an earnings increase."

"Put simply, when targets are missed it can be argued that managers are using non-standard reporting methods to help protect their compensation or detract from poor GAAP-based earnings results," Ranasinghe said.

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Professor David Lont, head of Otago's department of accountancy and finance and co-author of the study, said the practices being used "should be something individual shareholders need to be wary of".

A company may argue that their use of non-GAAP measures is to explain their performance better, Lont said. "But if CEO's are highlighting selective profit metrics instead of GAAP measures, due to a desire to improve their compensation or disguise poorer performance – essentially painting the picture they want investors to see whilst detracting from potential negative performance shown in GAAP measures, then this should raise alarm bells," Lont said.

He added that to ensure the picture given to shareholders is accurate, more regulation of New Zealand's reporting of non-GAAP profit figures might be needed.

New Zealand Shareholders' Association chief executive Michael Midgley said use of non-GAAP by companies - such as annualised monthly revenue - had become a common theme.

"The key thing is it's really important that we judge all companies by the same standard, so if they are not using the same standard, - GAAP - then it makes it harder, and it makes one more alert to see why," Midgley told the Herald.

"It's a heads up that we should pay attention and see why this (non-GAAP) is being used," he said.

The study statistically modelled possible factors such as firm size, governance quality, CEO turnover, CEO compensation, firm risk, and the number of analysts following the firm to understand the likelihood of these factors to explain the use of non-GAAP profit measures for New Zealand publicly listed firms during 2004 to 2013.