Each year, any number of media organizations and shareholder groups publish lists of America's highest paid CEOs. And each year, even before those lists come out, boards of directors at those companies start the spin, aiming to do preemptive damage control by attempting to justify those enormous compensation packages to their shareholders.
Investors often are skeptical of these defenses, and they should be. It's rare -- though not impossible -- to show that a chief executive really deserves $50 million or more for his efforts.
24/7 Wall St. wanted to know: Which of the CEOs bringing home those top pay packages were worth the investment?
We used the annual CEO Pay Survey 2011 from independent research firm GMI to identify the 10 highest paid CEOs of fiscal 2010, then analyzed their companies' performance to determine which ones gave the most value for their millions.
Any such review is, of course, subjective by nature, and our independent analysis will be different from a board's reasoning. Corporate boards may take into account the long-term record of a CEO, or devise a pay package based on an extraordinary year. Directors also may give a CEO a big bump just before he or she retires. Our analysis downplayed each of these factors, but didn't eliminate them.
Instead, we judged the "fairness" of a pay package based primarily on how shareholders fared during the CEO's compensation year. Our primary measurements were revenue growth, earnings growth and stock price change.
Here's 24/7 Wall St.'s list of the 10 highest paid CEOs for fiscal 2010, and our analysis of whether they were worth the money to their shareholders.
America's 10 Highest Paid CEOs: Which Are Worth the Money?
Company: GAMCO Investors (GBL) Total 2010 compensation: $56.6 Million
GAMCO didn't do very well for investors in 2010. The price of the company’s shares was flat, considerably underperforming the S&P 500 increase of 14% that year. The company manages mutual funds and other investments for private individuals and public enterprises.
But GAMCO had a relatively good year in terms of revenue and earnings growth. Revenue rose from $218 million in 2009 to $280 million. EPS was up from $2.03 to $2.55.
Even so, based on the relatively small size of the company and GAMCO’s overall performance, Gabelli is overpaid.
Company: Aetna (AET) Total 2010 compensation: $57.8 million
Aetna’s shares were down 7% in 2010, underperforming the S&P 500 by a large margin. But Williams’ pay was based on several factors, none of which was stock price. EPS, pre-tax operating margins and an increase in the dividend were the major measures of his performance, according to the board.
The board can make the case, persuasively, that the insurance firm had a good year financially in 2010. The company’s EPS rose from $2.84 in 2009 to $4.18 last year, even though revenue fell slightly from $28.3 billion to $27.6 billion. Williams retired in 2011. The board gave Williams a relatively reasonable package as he left, at least based on 2010 performance.
Company: Vornado Realty Trust (VNO) Total 2010 compensation: $64.4 million
Vornado’s shares significantly outperformed the S&P 500 in 2010, up over 17% for the year. The board says it relies on EBITDA and total return to shareholders to set CEO pay. Both improved in fiscal 2010 compared to 2009 as EBITDA rose from $1.7 billion to $2.2 billion. Vornado produced strong financials on a GAAP basis as well. Net income per share rose to $3.24 in 2010 from $0.28 the year before. Revenue rose from $2.7 billion to $2.8 billion. Fascitelli is a CEO who earned what he made.
Company: Polo Ralph Lauren (RL) Total 2010 compensation: $66.7 million
The clothing designer and manufacturer gave investors an extremely good return on their holdings in 2010, as share price jumped 35%. In the fiscal year that ended April 2, EPS rose from $4.85 to $5.91, and revenue grew by 13% to $5.7 billion.
The one question investors might ask is whether Lauren’s compensation is based on fair deliberations by his board. The CEO owns shares that hold 75.6% of the corporation’s voting rights.
Company: General Growth Properties (GGP) Total 2010 compensation: $66.7 million
When it comes to how investors in General Growth fared, timing was a major factor: Did they buy in before or after it emerged from Chapter 11?
The company entered bankruptcy in April 2009, and it became clear as early as April 2010 that it would exit Chapter 11 later in the year. The company returned to regular operations when the final reorganization was approved last November. The gain in the company’s shares from early 2010 to the end of the year was 14-fold.
While the bankruptcy process makes it impossible to make reasonable P&L comparisons from 2009 to 2010, revenue has remained steady. Metz earned his money for those who took a chance on the company’s stock early last year.
Company: CVS Caremark (CVS) Total 2010 compensation: $68.1 million
CVS Caremark shares underperformed the market last year, rising only 8%. That alone makes it hard to justify Ryan’s compensation. The company's financial results were also poor. Revenue fell from $98.7 billion in 2009 to $96.4 billion in 2010, and EPS fell from $2.55 to $2.49.
Company: Verisk Analytics (VRSK) Total 2010 compensation: $68.4 million
Verisk slightly underperformed the market with its shares rising 14% for the 2010 calendar year. For that return, Coyne's pay package is extravagant. Still, Coyne should get credit for a relatively strong year in other ways. EPS rose from $0.72 in 2009 to $1.36 in 2010. Revenue rose from $1 billion to $1.1 billion year-over-year.
Company: TRW Automotive (TRW) Total 2010 compensation: $76.8 million
TRW shares soared during 2010, ending the year almost 105% higher. The extraordinary performance was driven by EPS, which rose from $0.51 to $6.49, as revenue moved from $11.6 billion to $14.4 billion. TRW, which supplies car parts, benefited from the rebound in the auto industry, but Plant’s compensation is reasonable based on the results he delivered to shareholders.
Company: Omnicare (OCR) Total 2010 compensation: $98.3 million
Gemunder’s 2010 pay package can't be justified based on shareholder returns. The firm’s stock was up only 2% for the period. It's no wonder the shares didn't do better: The company’s EPS fell from $1.81 in 2009 to a loss of $0.91 in 2010. Revenue fell from $6.2 billion to $6.1 billion.
Company: McKesson (MCK) Total 2010 compensation: $145.3 million
McKesson’s shares were up 13% in 2010, underperforming the S&P 500. And while its revenue was $112 billion in 2010, up from $108.7 billion in 2009, EPS fell from $4.62 to $4.29.
In that light, it is hard to imagine how the board of McKesson could have justified giving Hammergen such an extraordinary compensation package.