Top Paid CEOs Did Not Perform Well as a Group in 2008

In the corporate world executives receive high amounts of compensation including salary, stock options, restricted stock, perks and many others, which in some cases could amount to millions of dollars. It is often argued that executives of large Fortune 500 corporations get a large paycheck as an incentive to perform well in order to reward shareholders with increased wealth.

When times are good and stock prices are soaring to new all time highs, most investors are happy enough to have increase in their net worth. When times are tough however and companies are cutting back staff, dividends and capital expenditures in order to maintain an adequate liquidity, excessive CEO pay does stick out as an outlier.

I recently read an article from the NY times which provided a “List of Highest-Paid CEOs for 2008”.

On average the stocks of the companies led by the highest paid CEOs fell by 51.33% in 2009. This was much worse than the 37% negative return experienced by S&P 500 in 2008.

The average yield of the stocks in the list is about 1.67%. Only two companies raised their dividends in 2008 – Phillip Morris International (PM) and Chesapeake Energy (CHK). On the other hand Citigroup (C) cut its dividends by 70%, while Motorola (MOT) eventually decided to suspend its dividend most recently.

The case for Motorola is particularly intriguing, as the total pay for its CEO in 2008 would have covered almost all of the dividend payments for one quarter. The elimination of the dividend is a pretty good example of an alarming trend in modern corporations where top management seems to get rewarded, while shareholders end up paying for all mistakes with their hard earned cash.

While I agree that maintaining liquidity is important for most companies whose business is cyclical in nature, as a shareholder I disagree that company executives should be receiving enormous compensation during tough periods for business.

Comments

[chippo:]

As a shareholder and human being I think that CEOs should not be get 10s let alone 100s of millions even when times are good.

May 13 11:15 AM

[User 413268:]

These CEOs' are nothing better than common criminals in $1000 suits that American taxpayers paid for. Shareholders, ATTENTION
shareholders,they are STEALING your money. Show them the door,all of them.

May 13 11:40 AM

[Lightway:]

The apologetic commentary of the past 10 years dictated that the overpaid CEO was worth the price - since he or she brought a premium to the firm (growth, increased profit margins, some master plan that was going to make everybody rich overnight, etc.). However, as the author's chart demonstrates, the return on investment here is absolutely terrible. This has been demonstrated through the CEO cult-of-personality superhero worship in pretty much any business magazine.

It's only in rare cases, where you have a leader like Steve Jobs (who commands a $1 salary and has his compensation tied to performance via stock price), that the CEO leadership leads to the health of the company, and big return for investors, relative to what the CEO is being paid. Investors are rightly worried about the health of Jobs, and in this case, their fear and diligence is warranted, but this is a rare exception, not the rule.

We should have learned our lessons from the Enron fiasco earlier in the decade, but compensation became even more exaggerated after that. CEOs making big money, yet laying off workers at the same time, need to be held accountable for their actions.

May 13 01:03 PM

[theobannion:]

Managers as a class are bureaucrats, and the most valued bureaucratic skill is interpersonal politics. This is why you and I earn what we earn, and the CEO of Motarola earns what he earns: He's a much better manipulator. That these people are paid their outrageous incomes has very little to do with the tired refrain "We have to pay our best & our brightest, or we'll lose them to the competition." If these con-artists are the best and the brightest, let the competition have them & good-riddance.

Some of them, in fact, should be in prision. But who will prosecute them? They own the government.

SOB.

May 13 01:25 PM

[MichaelinMe...:]

I don't believe CEO's need to earn hundreds of millions of dollars. But I have 2 observations. First, CEO bashing is a great pastime, but how many of the Bashers have tried to run a complex organization? I suspect most of the comments are from 'Monday morning quarterbacks.'

My second observation is that I have always been curios why it is immoral for CEOs and others in the business and finance world to earn a million dollars per year, but it is OK for Oprah to earn about $100 million per year, or for Manny Ramirez or Alex Rodriguez to earn $25 million per year. If earning over a million dollars is immoral, then it is immoral. It should not matter that one person is a CEO and another is an entertainer.

May 13 04:16 PM

[gaillje:]

As in the case of Mot it's immoral to get such a pay !!!! which could have covered a dividend payment. What did he do so well ?????????????to get such a reward ?????????

Can't he be shown the exit ????

May 14 12:31 PM

[KrapKorner:]

It's sick, here these ceo's are laying off, left and right, while we buy there products/services, ect... Mot made millions this q. Thats by far more then most, and there cutting peoples hard earned cash, laying off by the thousands? That's immoral. A C.e.o. isnt no magic seat. All it takes is education. I am sure the guy isnt a high school drop out for pete's sakes, but has a pretty nice track record... (must be a good salesmen too, I assume) I honestly think of a c.e.o. more like a middleman... Look at Pfizer, what a joke they are!

May 28 10:42 PM

[KrapKorner:]

My thought is... It's a rough economy, CEO's should take a hit way before laying off common, hardworking, perhaps way underpaid employees... After all, If the common, underpaid worker perhaps under performed, I would bet his/her's job would be cut, or gone... The c.e.o cant help it if the economy is rough, but the C.E.O has had millions sitting in his lap since he walked in the door. When times are better, then it's time to cash in... Till then save your employees, and your company... or your soul. I think company's that work this way, consumers should re-act by not buying there products, and avoiding there services, because in the end here, We are supporting such crap. So what if motorola goes under? (they are not hurting for cash, trust me) They did paying there c.e.o foolishly. (speaking of this.. Anyone want to buy my moto w850.. it's now for sale!)

May 28 10:52 PM