What’s a CEO worth? By many people’s thinking, not as much as the typical one is getting paid. Outrage over CEO pay and perks reached a crescendo when the heads of the Detroit automakers personally asked Congress to bail out their companies in late 2008 – after swooping into Washington on private jets. Since then there have been slow-moving efforts to start to bring some accountability to excessive executive pay. Just last week, the SEC proposed rules to require all publicly traded companies to hold advisory shareholder votes on executive compensation as well as require mutual fund managers to disclose how they voted their fund’s shares in such votes.
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That may not make a difference, of course – advisory votes would be non-binding. And you may rightfully ask: why should I care? In a study of 342 companies in the S&P 500 whose fiscal years finished between the ends of June 2009 and January 2010, executive compensation researcher Equilar Inc. found that the median salary had fallen for the second year in a row to $7.5 million. Drop weekends and holidays and that is still about $30,000 a day, or a mere $2,000 less than what the average American over 25 will make in a full year, according to Department of Commerce data. Economic history shows that the widening of the gap between the economic haves and the have-nots reflects a fundamentally weak economy. Not sure that’s true? Consider this: when the US was running budget surpluses in the late 1990s, income inequality shrank. It’s been widening the past decade. When did you feel better about the economy, then or now?
But as an investor and economic elite wannabe (or, lucky you, an economic elite wannastay), you may still be saying: why should I care? Because companies in which CEO compensation is more aligned with shareholder interests are more successful companies. A 2001 study of 5,200 publicly traded companies by executive recruiting firm Watson Wyatt (now Towers Watson) found quite simply: “Shareholder returns were significantly higher in companies with higher levels of executive stock ownership.” The explanation is also simple: their economic fate is tied up with the fortunes of the stocks. Other studies have shown this as well.
It shouldn’t be a surprise that the opposite – little or no executive stock ownership – seems to have an effect too. Indications are that short sellers target such companies, seeing lack of stock ownership as a implicit statement of faithlessness in a company’s prospects. The troubles this summer of Rubicon Technology (RBCN), a promising maker of highly coveted sapphire substrates used in the booming LED lighting industry, appeared to stem from the fact CEO Raja Parvez sold all his shares in June. Short sellers loaded up on Rubicon shares (with a short ratio of an astounding 75% at one point) and eventually forced shares down 43% to a seven-month low of $18.73 two weeks ago, despite indications through that period that the company was experiencing booming demand and pricing power (they have since rebounded to $25 on earnings expectations.)
What you really want are good leaders who recognize that when their companies and shareholders do well, they do well too. With help from the staff at Kenexa I found the top 10 lowest paid CEOs today. It shouldn’t surprise you that they lead some of the most successful companies – and stocks – in the market today.
Please note: Salary and compensation sources include Kenexa and/or the companies’ latest available proxy statement.
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