10 Highest Paid CEOs for 2008: Unbelievable

This post will surely outrage a few people. The Associated Press has gone through the various proxy statements filed from the first of the year until the end of April and has analyzed the highest paid CEO's in the S&P500. So, firstly, we'll present their list of raw data. Secondly, we'll also make a few calculations of our own below where we determine just how much each CEO was compensated for each percentage point their shares dropped over the course of 2008.

Without further ado:

Top 10 Highest Paid CEO's of 2008

1. Aubrey McClendon (Chesapeake Energy - (CHK)): $112.5 million

2. Sanjay Jha (Motorola - (MOT)): $104.4 million

3. Robert Iger (Walt Disney - (DIS)): $51.1 million

4. Lloyd Blankfein (Goldman Sachs - (GS)): $42.9 million

5. Kenneth Chenault (American Express - (AXP)): $42.9 million

6. Vikram Pandit (Citigroup - (C)): $38.2 million

7. Steven Farris (Apache Corp - (APA)): $37.2 million

8. Louis Camilleri (Philip Morris International - (PM)): $36.9 million

9. Kevin Johnson (Juniper Networks - (JNPR)): $36.1 million

10. Jamie Dimon (JPMorgan Chase - (JPM)): $35.7 million


Let the riots begin. First, let's start by examining the requisite financial company CEO's. It is obviously astonishing that Vikram Pandit of Citigroup, Lloyd Blankfein of Goldman Sachs, Ken Chenault of American Express, and Jamie Dimon of JPMorgan are even on this list at all whatsoever. Sure, their pay packages were most likely negotiated long before the financial crisis. But, even so, it is borderline ridiculous that they earned so much for causing shareholders so much pain. Vikram Pandit's Citigroup common stock lost almost 75% in 2008 and for that awesome accomplishment he was compensated over $38 million dollars. Sure, he has "righted a wrong" (and that is a stretch calling it that) by taking a $1 salary and no bonuses until Citi is profitable again. Yet, his appearance on this list will surely outrage many. Surprisingly (or unsurprisingly?) no one mentioned above graces Time's list of 25 people to blame for the financial crisis.

To take things a step further, we wanted to illustrate just how truly ridiculous things are by doing a quick calculation. Below, we came up with a rough estimate of how much each CEO was compensated for each percentage point their stock decreased over 2008.

CEO Compensation Per Percentage Point Decline in Their Company's Stock

1. Chesapeake Energy - CHK: Aubrey McClendon made around $2,008,928 for every 1% his stock dropped, giving him a total salary package of $112.5 million based on CHK shares being down around 56% for 2008.

2. Motorola - MOT: Sanjay Jha earned around $1,491,428 for every 1% his stock dropped, giving him a total salary package of $104.4 million based on MOT shares falling around 70% for 2008.

3. Walt Disney - DIS: Robert Iger earned around $1,965,384 for every 1% his stock dropped, giving him a total salary package of $51.1 million based on DIS shares declining 26% over the past year.

4. Goldman Sachs - GS: Lloyd Blankfein made around $726,379 for every 1% his stock dropped, giving him a total salary package of $42.9 million based on GS shares being down around 59% for 2008.

5. American Express - AXP: Ken Chenault made around $691,935 for every 1% his stock dropped, giving him a total salary package of $42.9 million based on AXP shares being down around 62% over the course of last year.

6. Citigroup - C: Vikram Pandit made around $509,333 for every 1% his stock dropped, giving him a total salary package of $38.2 million based on Citi shares being down around 75% over 2008.

7. Apache Corp - APA: Steven Farris earned around $1,377,777 for every 1% his stock dropped, giving him a total salary package of $37.2 million based on APA shares decreasing around 27% for the last year.

8. Louis Camilleri (Philip Morris International - PM: Louis Camilleri earned around $3,690,000 for every 1% his stock dropped, giving him a total salary package of $36.9 million based on PM shares sliding only around 10% in 2008.

9. Juniper Networks - JNPR: Kevin Johnson earned about $802,222 for every 1% his stock dropped, giving him a total salary package of $36.1 million based on JNPR shares sliding 45% over the last year.

10. JPMorgan Chase - JPM: Jamie Dimon made around $1,298,181 for every 1% his stock dropped, giving him a total salary package of $35.7 million based on JPM shares being down around 27.5% for 2008.


Please be aware that these are merely rough estimates made by using the compensation estimates provided by the AP and a rough gauge on how well each stock performed over the course of 1 year. We did not take into consideration any salary re-negotiations, give-backs, or other actions that might have been taken by CEO's in an effort to try and make their ludicrous pay seem "not as bad." So, while these numbers may be slightly crude, they will certainly energize angry shareholders that much more.

Let's dive into some of these numbers. Jamie Dimon's number seems artificially high mainly because his stock only fell 27.5% for 2008 compared to the catastrophic drops seen at Citigroup and other financial institutions. So, while he definitely earned a lot of money, his shares did outperform their financial peers. Louis Camilleri of PM also earned a hefty sum for each 1% decline in shares of his company. But, you also have to consider that PM shares only slipped around 10% in 2008. Sure, a loss is always a bad thing. But, all things considered, their shares were barely down at all compared to the S&P's monumental losses.

Lastly, we want to focus on Aubrey McClendon of Chesapeake Energy; he has a very interesting story, to say the least. He is number one on the compensation list and his guidance led to a 56% decrease in CHK shares over the course of 2008. And, better yet, he was even margin-called on his own company's shares, as he had been buying tons of CHK on the way up with leverage. As shares of CHK began to tank, the margin clerks forced McClendon to liquidate his shares in a capitulative sort of event. What is even more asinine about his particular situation is that the board of Chesapeake has essentially "rewarded" Aubrey in terms of compensation (no doubt as a means of helping him recover from his margin-call debacle).

That's borderline ridiculous. The man lost shareholders a ton of money and he himself felt the same pain the shareholders did. Yet, his company said "thank you" and essentially bailed him out of his mess, loosely speaking. Shareholders are undoubtedly wondering why they weren't bailed out by the board too. Don't get me wrong, McClendon is definitely top notch when it comes to management teams of public companies. But, does he deserve this kind of preferential treatment? I'm sure everyone out there (that is, except Chesapeake's board) shares the same opinion we do.

This list merely turns the spotlight (yet again) to executive pay. This has long been an issue on Wall Street and with companies in general. But, instead of making progress on the matter, we continue to drift along with no real change. We here at market folly are certainly left wondering what is taking so long. After all, this list is yet another piece of evidence that drastic change is needed in the realm of executive compensation as it relates to performance.

Underperform? No problem, here's a load of money for your time. Outperform? Great! Here's some money for your time, and here's even more money for doing what you were supposed to do in the first place. Great doing business with you, see you next year!


CEO pay source: AP via NYT

Comments

[suzukisan:]

And we can't get merit pay for teachers?

May 05 02:45 PM

[Mmarrkk:]

Here's where I stand: if they are truly "overcompensated", then the shareholders would hold the BOD's responsible. The BOD's are voted on by the shareholders and elected by a majority. Now, am I not correct in saying that a majority of shareholders VOTED FOR the BOD? So, that would say that the BOD has the approval of a majority of the shareholders. SO, if what they did is SOOOOOO bad, I would envision the BOD getting voted out next election. But that isn't going to happen because a MAJORITY OF SHAREHOLDERS AGREE WITH THEIR ACTIONS! And this is a majority rule situation. Heck, I can't stand the actions being taken by Obama, but he was elected by a majority.

May 05 03:12 PM

[nyoneway:]

To Market Folly:

How long is "long term"? The stock price today is essentially the same today as of February of 2005. The price of CHK was relatively flat from end of 2005 to start of 2008.

2008 as you know was a record year for energy commodities. With that said, CHK started 2008 with $40 and like many of it's peers, it spiked during the summer of 2008 and ended the year down more than 50% at ~$17.

The only people who have made money (sans inflation) holding CHK long term would have to made their entry point more than 5 years ago. How far back you want to look now, 10 years?

Arguably, the only person on the list who can justify his compensation is Jamie Dimon, and I'm only saying that because JPM lost less money than the rest of Wall St banks and managed to acquire BSC and WaMu for pocket change. They are well positioned to gain additional market share during the upcoming recovery.

May 05 03:34 PM

[1967:]

Market Folly - I appreciate your comments and the analysis... Would you please take a look at the compensation packages for professional atheletes and their performance? Finally, the team/company owners (and their Board(s)) and we fans/shareholders -- are the people responsible - for the compensation packages. We should all take a good look in the mirror... Thanks again.

May 05 06:53 PM

[ubuy2w:]

I absolutely agree with you on it is the boards fault that Aubrey gets overcompensated however you are extremely naive if you think that boards have anything thing to do with shareholder democracy. Aubrey hand picked every board member and do you have any idea how much it costs to launch a proxy fight if you are interested in changing the board . If institutional shareholders started acting like owners things might change but to date nothing. The little sweet heart deal that Aubrey made with the company and his map collection would turn your stomach as well, perhaps next he will be asking the company to take some of that high priced Maui real estate he is trying to unload.


On May 05 03:12 PM Mmarrkk wrote:

> Here's where I stand: if they are truly "overcompensated", then the
> shareholders would hold the BOD's responsible. The BOD's are voted
> on by the shareholders and elected by a majority. Now, am I not correct
> in saying that a majority of shareholders VOTED FOR the BOD? So,
> that would say that the BOD has the approval of a majority of the
> shareholders. SO, if what they did is SOOOOOO bad, I would envision
> the BOD getting voted out next election. But that isn't going to
> happen because a MAJORITY OF SHAREHOLDERS AGREE WITH THEIR ACTIONS!
> And this is a majority rule situation. Heck, I can't stand the actions
> being taken by Obama, but he was elected by a majority.

May 05 08:03 PM

[ubuy2w:]

And just for the record I think he did one heck of a job for the shareholders over the last ten years better than most my entire point is he got paid very well for what he did .

May 05 08:08 PM

[doubtful:]

The BOD's are the problem. Look at their compensation. It's easy to see they are being bribed. Shareholders are a flock of dumb sheep.
Maybe some daytrader opportunists or some minority manupilators. How long can this system last? I'm searching for alternatives. Any suggestions?

May 05 10:52 PM

[Wildhawk:]

MMarrkk- your comment about the BOD being voted out in the next election doesn't hold water. Over 50% (and I believe the number is something like 70%) of shares are held either by institutions directly or indirectly on behalf of shareholders, rather than by individual shareholders themselves. Those institutions vote proxies in favor of management in virtually all cases, unless explicitly instructed otherwise by attentive individual shareholders.

So why are shareholders letting the institutions vote their proxies for them? Because most individual investors don't have the foggiest notion of how to read a 10-K or a 144A (proxy statement), and so couldn't even begin to tell you what the senior management teams of the companies they own make each year, much less what metrics those execs are paid on. Call it laziness, call it ignorance, call it what you will, but BODs don't get voted out because shareholders don't take the time to read disclosures or have the skill set to interpret those disclosures without it being spoonfed to them by the mainstream media. Even then, most have no idea that they even have an ability to vote on it, and when they do, virtually none of those votes are binding to the company (see all the drama and discussion around "say on pay" proposals, which also wouldn't be binding to companies).

Our current regulatory framework isn't in place to make this stuff easily accessible and understandable to the individual shareholder; it's set up to cater to ramming through whatever BODs want to do with a minimum of supervision and consequences from the true owners of the companies. Heads they win, tails we lose.

Not every company acts this way, but the ones that don't are the exception, not the rule.

I still think the solution to all of this is to institute fiduciary responsibility for everyone who handles the money or financial assets of others as an intermediary (it basically requires financial intermediaries of any kind to follow the "prudent person" rule, and to always act in the best interests of the end client). That would include C-level execs and BODs. I venture to say you wouldn't see this sort of negligence and recklessness from BODs and management teams if the consequences of their decisions could result in jail time. Incentives just would not be this out of whack if the decision makers might go to jail as a result.

May 06 12:21 AM

[holmesnmanny:]

The only reason people care about compensation now is because these companies aren't making artificially high profits anymore.

The only real way to reduce the salaries of executives is to start creating laws that force executive compensations to mirror stock prices. That way if a stock falls because a company was acting unethically the executives don't make any money that year.

Creating a real office that has teeth in oversight over executive compensation of public companies would accomplish a lot as well.

May 06 09:04 AM

[dcb:]

PONZI. YOU BUY WORTHLESS PAPER AND SOME GUY WHO KILLS THE WEALTH GETS RICH.

May 06 09:11 AM

[IMWatchingU:]

It all comes from the Boards. Vote them out. Set presidence with 1-3 companies and maybe the rest will realize. Make a run on the common stock and push a company into the ground. Nothing wakes up these pompous fools like crushing their nest eggs. The best thing is they are on stock restrictions.

Compensation should be based on 3-5 year targets. Not quarterly. This gives the company the ability to rake back during times of poor executive decision. Additionally, limit the loan ability off this compensation pool. Maybe 25%.

May 06 09:11 AM

[dcb:]

This info has been sent to the white house, Barney frank, sen. Charles grassley, and rep elijah cummings. I urge you to write and keep the pressure up

May 06 09:22 AM

[Duude:]

You have to hand it to Pandit, he sure broke the bank with his compensation as well as the bank's own finances. To be fair, he didn't create the problems at Citi, but has he made the right moves for the company's sake, or defaulted to 'too big to fail' status thus enabling his government backstop? We all know the answer, but he still made 38 million?

May 06 10:10 AM

[Wisdom vs. ...:]

if you think there is a problem, then put your money where your mouth is and get out of corporate bonds and equities; start your own companies, invest in small business. corporate profits will drop, stock prices will go down and CEO pay will drop. if you do not, then you prove you are not only comfortable with the system, you are in fact complicit. overpaying CEOs does not hurt the economy, just shareholders; if you are not a shareholder, then that CEO's pay is none of your business

May 06 11:21 AM

[Leftfield:]

Overpaying the failed leadership that is now grabbing our kid's futures for themselves as well has gone on too long. The idea that market forces drove these people's payscales because they are so good is fully debunked. The system needs fixing. It is clear they, in aggregate, gamed the system to reward themselves, throw crumbs to the middle class in inflated asset prices and easy credit to mask middle class pay deterioration and now, grab not just from their companies but from the taxpayers. This is becoming the divine right of kings.

May 06 01:17 PM

[Rocky W.:]

These guys are CEO's of huge corporations. They don't steal money. Consumers voluntarily give them money for their products. From this voluntary money, the CEO's are compensated. People made miscalculations and bought their stock and lost money. The CEO's themselves made bad calculations and that's why their companies are suffering. When a shareholder AND a CEO makes a mistake then they should suffer consequences. Shame on the government for bailing out companies.

No one deserves that ridiculous amount of money? Last I checked this was a capitalist society and that's not for any one person (or entity) to decide. Many sports stars and actors/actresses make way more than anyone on this list. Do they deserve that much? Should we cap the amount of money allowed to be made in this country?

May 06 05:19 PM

[Market Folly:]

Appreciate all the insightful comments here, great to get a discussion going and think this topic will continue to be addressed going forwards. I want to set the record straight that I by no means am against capitalism. Yes, the article may slightly *seem* that way simply because I feel they've been overcompensated when they have underperformed. Those of you have brought up professional athletes bring up a great example. Indeed, there should not be a limit to how much you earn in a capitalist society... there should be no cap.

I'm merely presenting a scenario whereby we should consider other alternative pay scales, truly based on performance. Those CEO's were going to get the same amount pretty much regardless if they did poorly or not. Heck, if they outperformed they probably would have done more. I was just proposing that we move to a more performance based program where their salary is dependent on if they outperform or not, how they do for shareholders, and whether they have been embodying the values of the company. I'm by no means saying I think they should be judged solely on their stock performance.... that's not the case at all. I personally don't have the solution but wanted to lay out a scenario in which shareholders can judge CEOs and their pay on numerous criterion; offering both short-term and (more importantly) long-term incentives. Right now the boards have too much control and the shareholders too little. That's all I'm trying to say here, sorry if it had anti-capitalistic tones... that wasn't my intention.

Great insights everyone, appreciate them.

May 06 07:52 PM

[Market Folly:]

sorry, sentence edit: "Heck, if they outperformed they probably would have *earned even* more."

May 06 07:56 PM

[Missing_Link:]

I propose that CEOs and upper management of public companies be compensated no more than $1M per year in cash with the balance being paid in stock which must be sold exactly 5 years after that individual's resignation or departure from the company.

I have no problem with a CEO or any executive earning $100 million for a few years of work, so long as we force them to wait 5 years for the balance to make sure they didn't wreck the company or leave time bombs sitting around.

I think 5 years to redeem your stock is enough to snap CEOs out of short-term thinking and into the mode of building companies that will be profitable over the long term.

May 06 08:38 PM

[Winston Smi...:]

So you have Andrew Hall, a trader, in a battle to once again make $100 million a year, Steve Schwarzman of Blackstone making $702,440,573, Lloyd Blankfein making $72 million, and Steven Schonfeld, owner of a trading firm collecting $200 million. And what did they produce? Wealth for the shareholder? Not likely, most profits (or lack thereof) paid the company executives. What good did they bestow to humanity? Nothing! If anything, their net effect was negative. Whether it was creating financial instruments that contributed to this liquidity mess or trading oil contracts that they never had any interest in taking delivery for. Meanwhile, the average human saw their fuel consumption cost double. Why? Just so someone could play a high-stakes game and make more than a lottery winner in a single year. At what cost has this excess damaged humanity? What if all this effort and brain power actually went toward a noble cause? Would we as humans be better off today? Will the person that finds a cure for cancer or figures out how to land a human on Mars be paid quite as handsomely over their lifetime what these guys made in one year? Doubtful. What has humanity come to that the highest paid are those that shuffle paper?

Aug 14 04:06 PM