The official explanation from the league is as follows:
Under the rules for compensatory draft selections, a team losing more or better compensatory free agents than it acquires in the previous year is eligible to receive compensatory draft picks.
The number of picks a team receives equals the net loss of compensatory free agents up to a maximum of four.
The compensatory picks will be positioned within the third through seventh rounds based on the value of the compensatory free agents lost.
Compensatory free agents are determined by a formula based on salary, playing time and postseason honors. The formula was developed by the NFL Management Council. Not every free agent lost or signed by a club is covered by this formula.
The operative phrase lies within the final sentence of the explanation. Who goes into the formula and why?
The answer is simple: players whose contracts expired at 4pm on March 12th are eligible for the compensatory formula (click here for the list). Players who were released before or after that deadline do not count, although they are technically free agents and are free to negotiate with any club.
The NFL defines players eligible for the compensatory formula as: unrestricted free agents with four or more accrued seasons whose contracts expired at the beginning of the league year (March 12). The rest is elementary:
In the event the player has not signed a Player Contract with a Club by June 1 of the League Year following the expiration of his last Player Contract, and if his Prior Club has not extended the player a June 1 Tender or has withdrawn the Tender, the player shall be completely free to negotiate and sign a Player Contract with any Club with no signing deadline applicable to such player.
In the event that a player in this category has not signed a Player Contract with a Club by July 22 or the first scheduled day of the first NFL training camp, whichever is later, in the League Year following the expiration of his last Player Contract, he may negotiate or sign a Player Contract from July 22 until the Tuesday following the tenth week of theregular season, at 4:00 p.m., New York time, only with his Prior Club, provided that the Prior Club has extended such player a June 1 Tender under Article 9, Section 1(b)(i) of the CBA.
So, how does this effect the Giants thus far, you ask? Let's take a look at which players will be included in the equation:
Players lost via free agency: TE Martellus Bennett, DE Osi Umenyiora, LB Chase Blackburn, S Kenny Phillips. All four "hit" the free agency market on 3/12.
DL Chris Canty was signed by the Ravens, but since he was released by the Giants on February 6th, he is not included in the formula. RB Ahmad Bradshaw and LB Michael Boley ,also released in February, are not eligible if and when they are signred by another team.
Players signed by the Giants that count towards the equation: TE Brandon Myers, DB Ryan Mundy, WR Louis Murphy and K Josh Brown.
DT Cullen Jenkins, LB Dan Connor and CB Aaron Ross were all players that were released by their former teams. They were not eligible for free agency at the beginning of the league year due to an expiring contract and therefore are not included.
LB Keith Rivers, QB David Carr, RB Ryan Torian and OL Kevin Boothe were also free agent signings, but since they re-signed with the Giants, they do not count.
Neither do DT Shaun Rogers (2/7) and OT Will Beatty (2/27), who were retained by the team before the league year ended.
Based on the above losses/gains, the Giants would receive some compensation because they lost three starters and Umenyiora, who had a considerable amount of playing time. Myers and Bennett basically cancel each other out, so if you pit Blackburn, Phillips and Osi vs Mundy, Murphy and Brown (who only played four games for the Bengals in 2012), the losses clearly outweigh the gains.
What round pick, or picks, they would be awarded next March is totally arbitrary. Only the league knows that answer. Plus the Giants may still lose more players. WRs Ramses Barden and Domenik Hixon plus K Lawrence Tynes all could be signed by other teams this spring/summer.