|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
The Most Overpaid and Underpaid CEOs
Posted by: Ben Strubel (IP Logged)
Date: January 19, 2012 06:55PM
The growing degree of income inequality in America has been in the news lately, particularly the gap between CEO pay and the pay of the average workers. Some argue this is unfair while others say the large pay packages are necessary to obtain top-notch talent. While we aren’t here to answer that question, I did think it would be interesting to take a look at what shareholders get in return for the large pay packages they shell out to top executives.
Typically when a major media company releases a list like this they look at stock market returns. This isn’t the most accurate method as the CEO has little control over the multiple his company is given in the stock market at the beginning or end of the time period studied. I chose to look at free cash flow instead.
I took the approximately 100 domestic companies in GuruFocus’ Undervalued Predictables screener and looked at how much free cash flow the companies generated for shareholders per dollar in executive compensation that was paid. I took the executive compensation numbers from the AFL-CIO Executive Pay Database for 2010 (the latest year available) and cross referenced them with the company’s trailing-12 month free cash flow numbers from Morningstar. For financial companies the trailing 12 months of net income were used instead of free cash flow.
Below is the “Hall of Shame” or the bottom 10. The shareholders of these companies got the least results for the dollars they spent on CEO pay and some shareholders even lost money.
The best bargains among CEO pay in the Undervalued Predictable screener were as follows.
Despite their hatred of him, MSFT shareholders are getting a good deal with Steve Ballmer. Of course his low pay probably has a lot to do with the huge number of MSFT stock options and shares he was granted in earlier years.
The highest paid CEO of the bunch was Ralph Lauren of Ralph Lauren (RL) with $29,701,175. Being the founder and CEO of your own public company is a nice gig, if you can get it. Shareholders of RL shouldn’t be too happy as RL barely escaped making the most overvalued list with only $16.67 in FCF generated per dollar of CEO compensation.
Like any industry. some people are widely overpaid and some are underpaid. CEO pay is no different.
Disclosure: Long MSFT
Stocks Discussed: IPAR, CYH, RPC, GEF, NEOG, DRI, MED, IIVI, TSCO, MSFT, CPRT,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.