There could be an opportunity to tweak the way we pay CEOs of big public companies. I hope this doesn't sound too harsh. But when you consider that the average 2008 compensation for the 10 highest paid public company CEOs was $40.7 million, while their companies lost half, or $30 billion, worth of their stock market value -- I wonder whether some change may be in order.
The year 2008 put a big exclamation mark on, hopefully, the end of an eight-year sentence of stabbing common shareholders in the back. Of the 10 highest paid CEOs, here are the four who destroyed the most stock market value while getting well above average pay. The companies are listed in descending order of the percentage destruction in stock market value, along with the CEO's 2008 compensation and loss in stock market capitalization:
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American Express (NYSE: AXP) CEO Ken Chenault made $28.6 million while his company's stock fell 65% -- slashing $38.5 billion in shareholder value
To be fair, two of these companies actually made a profit -- in 2008 American Express earned $2.7 billion and eBay made $1.8 billion. But the CEOs who got the higher pay worked for the bigger money losers -- Citi lost $27.7 billion and Motorola's net loss was $4.2 billion.
It's hard to see how investors can be encouraged to invest in common shares as long as the directors -- whose CEOs serve on each others' compensation committees -- are acting in their own self interest to boost their compensation regardless of stock market performance.
But CEOs are people and people will do what you pay them to do. If you pay for failure, CEOs will fail.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns Citi shares and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
4-03-2009 @ 7:45PM
winslow said...
I'm not a socialist, but I believe in fair play. The CEO's and the Boards need to be forced to limit salary, bonus, and benefits to no more than 30% above the lowest paid employee.
4-04-2009 @ 3:03AM
ricochet said...
Ebay's CEO NEEDS to be FIRED! He's turning the site into a scammers paradise with his & Meg Whitman's destructive "Disruptive Innovation" scheme. His new policies are protecting dishonest sellers with hidden IDs, shill bidding against honest buyers, while his corrupt Paypal policies are allowing buyers to keep sellers items, while the buyer receive refunds taken from the sellers by Paypal (owned by ebay)! Search the internet for this title, "Battle over bag: Seller loses out in online sale". Due to Donhoe's new policies, crime is becoming an epidemic on ebay. Though Paypal's spokesperson, Oldenburg, is eager to blame the credit card companies for the sellers' losses, the actual truth is PAYPAL retains the right to make the decisions in all disputes. Honest ebayers are also fleeing because, under Donahoe's supervision, Paypal has granted itself permission to withhold ANY user's funds for up to 180 days at Paypal's "sole discretion" per Paypal's amended User Agreement. Paypal retains the interest from those withheld funds.
It's time for shareholders to wake up and see that Donahoe is playing them for fools! The recent analysts meeting should have set off alarms for every shareholder with a vested interest! People, there is a VERY OBVIOUS reason Donahoe is trying to divert your attention away from ebay's core. He's praying that if he can get you to focus on Paypal, you won't notice the mass destruction and chaos he has created within ebay's core!!!
Start doing your homework and read the comments after editorials, news articles and blogs about ebay, to see what is REALLY going on with your investment! auctionbytes.com is a great place to start.
Even Donahoe's own employees can see he's tearing down what WAS a great investment. Go to glassdoor.com to read their observations.
Don't bother reading ebay's discussion boards though, ebay has effectively deleted thousands posts and suspended those users for speaking out against Donahoe's actions. They've SEVERELY censored their boards to sanitize them for the media and shareholders who will be there shortly, looking for answers to the ebay's poor, upcoming quarterly report.
4-04-2009 @ 1:59PM
thedude said...
@ Winslow - are you daft ? 30% more than the lowest paid employee so the CEO of Subway should be earning $11.00/hour ? Maybe you meant 300%, which would put him at maybe $75,000.00 per year ?
I don't think so
Executive compensation should be based solely on a % of the income taxes paid on the profits the company reaped
A company earns 1 billion in profits, pays 300 million in taxes sure pay the CEO $15 million for the year
A company that plays games and tries to boost stock prices while claiming losses to avoid paying taxes - then that CEO gets NOTHING
A company that pays excessive benefits in the form of private jets and lush corporate retreats and deducts these items from the taxes they pay ? well that is going to affect the CEO's pay directly
Tax based compensation is probably the only way to do it. No company wants to pay too much in taxes so they are always cooking the books to reduce their tax footprint. Well if the board and all the top execs reimbursement is based directly on how much in taxes the company has paid you will see much more honest reportage
If they are actually dependant on the company making a profit and paying taxes on those profits share value will naturally increase.
Although share price could still be inflated and deflated artificially by overzealous and creative traders. This would be less likely to happen as P/E would actually start making sense again