The 10 highest paid CEOs are amply rewarded -- earning an average of $58 million in the last year -- but they are not producing equally: three bargain CEOs created shareholder value on the cheap, three hogs added shareholder value but got paid too much to do so and four value destroyers were paid big bucks to lose shareholder value. Finding those bargain CEOs could be a great way to look for investment opportunities if you think that they can keep creating shareholder value at the same rate as they have in the past. (A map of the location of these CEOs is here.)
I calculate that in the last year, these 10 CEOs presided over the creation of $12 billion in stock market value -- their $58 million average CEO pay works out to 0.5% of that $12 billion in additional stock market value. But lest you get too excited, the average stock price of the 10 companies increased 12% while the S&P 500 rose 15%.
If CEOs were paid for value creation, I would expect all 10 of these companies to be contributing to that $12 billion in increased stock market value. But the reality is quite different -- four of the 10 destroyed shareholder value in the last year while the remaining six increased it. Who are the bargain CEOs, hogs, and value destroyers?
To answer this, I've calculated CEO pay as a percentage of the increase in stock market capitalization -- shares outstanding times stock price -- over the last year. This calculation yields the following list of bargain CEOs:
- Lee Raymond of ExxonMobil Corp. (NYSE: XOM) who sipped a tenth of a penny into his big jowls for every dollar of the $87.1 billion in stock market value that Exxon added in the last year. (I realize that Raymond retired earlier this year so he can't claim all the credit);
- Larry Ellison of Oracle Corp. (NASDAQ: ORCL) who received two-tenths of a penny for every dollar of the $30.9 billion in stock market value that Oracle added in the last year;
- Ray Irani of Occidental Petroleum Corp. (NYSE: OXY) who got seven-tenths of a penny for every dollar of the $9.4 billion in stock market value that Occidental Petroleum added in the last year.
The hogs included:
- Barry Diller of IAC/InteractiveCorp (NASDAQ: IACI) who gobbled down 5.4 cents for every dollar of the $1.2 billion in stock market value that IAC/Interactive Corp added in the last year;
- Lew Frankfort of Coach Inc. (NYSE: COH) who inhaled 2.3 cents for every dollar of the $2.8 billion in stock market value that Coach added in the last year;
- James Moffett of Freeport-McMoRan Copper and Gold (NYSE: FCX) who scarfed down 2.2 cents for every dollar of the $2.2 billion in stock market value that Freeport McMoRan added in the last year.
Finally there were those four value destroyers:
- Terry Semel of Yahoo! Inc. (NASDAQ: YHOO) who absconded with $57 million to preside over the loss of $15.2 billion in stock market value at Yahoo in the last year;
- Eugene Isenberg of Nabors Industries Inc. (NYSE: NBR) who took down $71 million to oversee the loss of $810 million in stock market value at Nabors in the last year;
- Scott McGregor of Broadcom Corp. (NASDAQ: BRCM) who received a whopping $57 million to manage the loss of $84 million in stock market value at Broadcom in the last year;
- Martin Franklin of Jarden Corp. (NYSE: JAH) who hauled in $49 million to watch Jarden lose $7 million in stock market value in the last year.
While it would be a vast oversimplification to buy companies run by bargain CEOs and shun the rest, it's not a bad place to start looking for investment opportunities.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in Broadcom, Coach, Exxon, Freeport McMoRan, Jarden, Nabors, Occidental Petroleum, Oracle, IAC/Interactive, or Yahoo.