Good corporate governance has failed when it comes to
executive compensation. CEOs of the largest corporations earn
more than 330 times the salary of the average worker, according
the AFL-CIO's Executive Pay Watch website, a 600% increase from
the gap recorded in the early 1980s, giving rise to an image of
executives swimming like Scrooge McDuck in a pile of seemingly
CEOs have been swimming in cash lavished on them by boards of
directors. Image: "The Sport of Tycoons" by Carl Barks.
found the scale of the problem not nearly as egregious when all
executives are included rather than just those in the
-- Bureau of Labor Statistics data shows it's a far more
reasonable 5-to-1 difference -- it's still clear that in too many
instances boards of directors fail to utilize appropriate
yardsticks for determining a reasonable and rational level of
A deep-rooted problem
Shareholder activist organization As You Sow sought to quantify
the disparity by combining statistical analysis with an in-depth
look at over 30 "red flag" indicators such as returns on assets
and invested capital, stock option and equity grants, pay above
peers, sustainability, and third-party rankings from
organizations like Institutional Shareholder Services and Glass
The result was
The 100 Most Overpaid CEOs
compilation of the worst offenders
abusing the trust placed with them and their boards of
directors by shareholders.
Don't confuse the review with greed and avarice. The activist
organization used data that analyzed the S&P 500 last June
based on linear regressions for financial performance and
executive pay. As You Sow notes that excessive pay squanders
shareholder resources and risks destroying shareholder value. It
can also keep companies from paying better wages to their
employees. It also found there is virtually no correlation
between CEO pay and shareholder returns.
An all-too common occurrence
Several of the companies on the list are not surprising because
good governance organizations have frequently castigated them for
overpaying their CEOs.
's Larry Ellison, for example, received total compensation of
more than $78 million and ranked second on the activist
organization's worst offenders list.
, which has
long been criticized
for its pay practices (among other things) with respect to former
CEO Aubrey McClendon, still came in 15th with $22 million in
total compensation paid to McClendon's successor, Robert
And while technology and energy are two industries where
investors probably expect to find over-the-top compensation,
other rather seemingly mundane businesses also scored highly.
Data: As You Sow, "The 100 Most Overpaid CEOs," February
A smorgasbord of entitlement
Chipotle Mexican Grill
Typically, the restaurant industry doesn't garner a reputation
for outsized executive pay, but surprisingly, there was one
restaurant that did make the list. Just one.
earned the distinction as the lone eatery overpaying its
executives. Chairman and co-CEO Steven Ells ranked 20th on the As
You Sow survey with total compenation in excess of $25.1 million.
Together with his co-partner Monty Moran, they were paid a
combined $49.5 million in 2013.
It's good to be the king. Chipotle Mexican Grill executives
have been gorging on excess pay and benefits for years.
And investors have had enough.
At the fast-casual food chain's annual meeting last year, 77%
of Chipotle shareholders
the compensation it lavished on Ells and other executives in a
say-on-pay measure that even saw mutual funds and other
institutional shareholders come down hard on the restaurant.
As You Sow complains such institutional investors all too
often serve as rubber stamps for excessive pay practices because
of their conflicts in managing billions of dollars in 401(k) and
Rabble-rousing to the rescue
But Chipotle said it heard the investor displeasure loud and
clear and last month revealed a new pay package it says will drop
noncash, stock-based compensation for all executives to $80
million, down from $98 million a year ago.
By awarding them based on how the restaurant does in relation
to others in its industry, it ought to make it harder for the
co-CEOs to exceed previous compensation awards. Chipotle says the
change will result in a decrease of approximately $34 million in
noncash, stock-based compensation expense attributable to officer
equity awards compared to 2013.
But don't feel too sorry Ells and Moran. They still got
raises, with their base salary rising from $1.4 million last year
to $1.54 million this time around.
Pay for performance
Considering that Chipotle Mexican Grill has been such a standout
performer, a raise isn't out of line. Over the past decade, total
return for the restaurant's stock has exceeded 1,400% in
comparison to the S&P 500 that's returned just 98%. Sales
last year were up more than 27% on a near 17% rise in comparable
SPY Total Return Price
Yet that doesn't justify doling out outsized rewards to
executives. As As You Sow notes, "It's also neither accurate nor
wise to attribute the performance of an entire corporation, with
its tens or hundreds of thousands of employees, to just one or
Chipotle Mexican Grill has come to define a niche market in
the restaurant industry, but reasonably rewarding all
stakeholders should be the goal of good corporate governance, not
just treating CEOs as royalty. The response investors got from
the fast-casual leader may encourage others to begin challenging
other companies on the list for their pay practices.
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Can You Guess Which Restaurant CEO Is the Most
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