Are Investors Getting Their Money's Worth from High-Paid CEOs?

Are CEOs Worth the High Salaries and Big Bonuses?CEO bonuses are up 30.5% in the last year, according to an analysis of 50 large companies published Friday in The Wall Street Journal. But how are investors to know whether they are getting their money's worth? If a company has more than $75 million in stock market value, the Dodd-Frank Act now gives them a say on pay: Shareholders can talk about executive pay at board meetings -- big deal! Ultimately, that alleged input is toothless unless it changes compensation practices.

On a macro level, companies are doing better than they ever have: U.S. businesses posted record profits of $1.66 trillion and piled $1.9 trillion in cash onto their balance sheets in 2010. (Of course, workers are paying the price for corporate good fortune, thanks to the nation's 8.9% unemployment rate, a 2.6% boost in productivity, and a 1.5% drop in unit labor costs.) But the ultimate measure of whether a CEO is worth the money can only be found at the level of the individual company: How much does the CEO receive compared to the shareholder value the company created during the year.

For that, let's apply an analysis I wrote for DailyFinance's sister site, BloggingStocks, in October 2006 of CEOs and their pay -- including all compensation, not just the bonuses -- that divided them into three classes:
  • Bargain CEOs who created shareholder value on the cheap;
  • Hogs who added shareholder value but got paid too much to do so; and
  • Value Destroyers who were paid big bucks to lose shareholder value.
The Wall Street Journal's analysis, conducted by Hay Group, reviewed proxy statements for 50 companies with revenues of at least $4 billion. The 50 CEOs received a total of $126.1 million in 2010 bonuses, up 30.5% from their 2009 take of $83 million as their profits grew 19%.

Applying my analysis to the 12 of those 50 CEOs who were mentioned in article reveals that they got paid an average of $15.9 million while boosting their market value $2.1 billion, an average of 9.7%. Based on the change in the number of employees reported in their 10Ks, on average, these 12 companies cut jobs by 0.7% to 76,640. Of these 12, four were Bargain CEOs whose companies may be worth a look. I'd be less inclined to put money into the four Hogs and the four Value Destroyers.

Bargain CEOs
  • Starbucks (SBUX). CEO Howard Schultz got paid $13.75 million and created $7.1 billion in market value increase (up 37.3%), a pay to market value ratio of 0.2% while cutting 5,000 jobs;
  • General Electric (GE). CEO Jeffrey Immelt's pay: $21.4 million; value created: $12.4 billion (+6.5%); a pay to market value increase ratio of 0.2% with 17,000 job cuts;
  • Johnson Controls (JCI). CEO Stephen Roell's pay: about $17.6 million; value created: $5.1 billion (+23.6%); a pay to market value increase ratio of 0.3% while adding 7,000 jobs; and
  • Navistar (NAV). CEO Daniel Ustian's pay: $10.4 million; value created: $1.6 billion (+55.2%); a pay to market value increase ratio of 0.6% while adding 800 jobs.

Hogs

  • Jabil Circuit (JBL). CEO Timothy Mann's pay: $9.8 million; value created: $144 million (+5%); a pay to market value increase ratio of 5% as it cut 400 jobs.
  • Clorox (CLX). CEO Donald Knauss's pay: $10.1 million; value created: $454 million (+5.1%); a pay to market value ratio of 2.2% as its job count remained unchanged at 8,300.
  • Walt Disney (DIS). CEO Bob Iger's pay: $28 million; value created: $1.3 billion (+20.8%); a pay to market value ratio of 2.1% while adding 5,000 jobs; and
  • Jacobs Engineering (JEC). CEO Craig Martin's pay: $6.4 million; value created: $455 million (+8.1%); a pay to market value ratio of 1.4% as it cut 400 jobs.

Value Destroyers

  • Whirlpool (WHR). CEO Jeff Fettig made $48.6 million while his company lost $687 million in market value, down 10% even as it added 4,000 jobs;
  • Monsanto (MON). CEO Hugh Grant made $13.2 million while his company lost $2.7 billion in market value, a 7% drop and cut 300 jobs;
  • Oshkosh (OSK). CEO Robert Bohn made $4.1 million while his company lost $600 million in market value, a 16.4% fall while adding 100 jobs; and
  • Beazer Homes (BZH). CEO Ian McCarthy made $6.9 million while his company lost $44 million in market value, down 12% while trimming 18 people.
In considering whether to invest in any of these companies, I would examine many other variables -- including their valuations in comparison to their growth potential. But all things being equal, I'd prefer to cast my vote on CEO pay by investing in shares of companies run by the Bargain CEOs, while shunning the Hogs and Value Destroyers.

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LAS

The story here says Jeff Fettig from WHR made $48.6M. Get real. The cash pay was significantly lower and the pay structure pays out money from previous years. In total $14.4M according to Forbes and 1/2 of that is in restricted stock. Still alot of money for sure. Don't think though that this man can't pick up a shovel and work on the farm. Mr. Fettig has been with Whirlpool since the early 80's working the order desk, sales, marketing, general management, President and now CEO. He also is actively involved with the Boys and Girls Club of America. CEO's have many responsibilities. Sure they aren't selling the products or making the products but they set the direction for a company, communicate successes and failures and

August 23 2011 at 6:54 PM Report abuse rate up rate down Reply
Dereck

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Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

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Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

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May 29 2011 at 12:30 AM Report abuse rate up rate down Reply
nigeriaseed@hotmail.com

It's more than a little unfair to count as "current" compensation the value of restricted stock that was given after the drop in value, as a future incentive, and that the CEO doesn't get to keep until he earns it (by future performance). This is superficial analysis and cheap shot journalism at its worst.

March 23 2011 at 3:18 PM Report abuse rate up rate down Reply
SNUFFY

Kinda sick-isin't it?

March 23 2011 at 1:34 PM Report abuse +1 rate up rate down Reply
bill

Want to know what the excessively over compensated made

aflcio.org/corporatewatch/paywatch/ceou/searchbystate.cfm

They just keep making more while they ship jobs overseas. I think we should just stop working for them and just collect a pay check. That's all they do! Its all about the share holders, not he customer or the employee....so let the shareholders do the work and make the companies profitable. Just like the *********** in Saudi land......if we didn't provide workers to pump the oil, they would be eating sand and drinking camel piss. Time to let the elite of the world learn how they got there.

March 23 2011 at 12:27 PM Report abuse +3 rate up rate down Reply
1 reply to bill's comment
gardeningatnite

That's right! The glass should always be looked at as being full!! Half water and half BS!

March 23 2011 at 1:14 PM Report abuse -1 rate up rate down Reply
gardeningatnite

The Industrial Revolution???......You load sixteen tons, what do you get? Another day older and deeper in debt. Saint Peter, don't you call me, cause I can't go; I owe my soul to the company store.....So how much has 'corporate philosophy' changed over the years???....Only via 'collective bargaining'!!!

March 23 2011 at 12:13 PM Report abuse +5 rate up rate down Reply
1 reply to gardeningatnite's comment
gardeningatnite

Corporate America and the local, state and federal government have caused their own problems; it has nothing at all to do with the workers. Union/non-union workers alike do what they are told to do by some very incompetent management, with no long term 'game-plans', and an inherent ability to sieze the money for the moment;....were does the buck stop?

March 23 2011 at 1:13 PM Report abuse rate up rate down Reply
gardeningatnite

Did any of them take money from you ? Do you believe that the average worker would make more if CEO's made less. Do you believe that the poor are poor because the rich are rich........... You must be liberal......This is strictly an editorial and we appreciate all of the time and effort that you put into it!....It's amazing that the 'pie' became a 'piece' for the average american worker via the unions! There is plenty of money to go around...not just upwards!

March 23 2011 at 12:10 PM Report abuse -1 rate up rate down Reply
Frank S. Pedigo

I am not really sure what a CEO does ? If a company has a board then why do they need a CEO ? Just think of how much money a company could save by firing their CEO and let the people who acutally do the work answer to the board .

March 23 2011 at 11:41 AM Report abuse +5 rate up rate down Reply
John

i would like to see some of these CEO'S go with me on the farm and give them a shovel.first of all they probably dont know what a shovel is.then if my business dont make money,i dont get paid.so how in hell does it work with them.

March 23 2011 at 11:18 AM Report abuse +1 rate up rate down Reply
zwooten

NO ! NOT EVEN CLOSE.... the pay scale is ludicrous.... top end salaries are so far out of whack to common folks..

March 23 2011 at 10:54 AM Report abuse +5 rate up rate down Reply