Do You Own the Worst Companies?

CEO pay that's disconnected from true performance is of utmost importance to investors and everyday Americans these days. When you consider the outrage that's galvanized Occupy Wall Street protesters, you can't leave this ratio out of the equation: Last year, the average pay of S&P 500 CEOs soared to 343 times that of the average worker.

Some companies are worse than others in this regard. Corporate governance watchdog GMI recently released its countdown of the worst of the worst in CEO pay. Are you the proud owner of any of these stocks? You might want to rethink what's poised to drain your returns dry.

Huge reasons for concern
Through its Executive Pay Scorecards, GMI examines the quality of S&P 500 companies' policies and practices in executive compensation. The organization's latest report sums up the ratings it's scored for 456 companies.

It's not consoling that the lion's share of the companies analyzed (58.1%) rated "average concern." Only 19.5% (89 companies) managed "low concern" ratings on executive compensation. As far as cause for alarm goes, 22.3% (102 companies) were ranked as "high concern."

That means we investors need to stay alert and use our proxies for say-on-pay votes. Obviously, the takeaway here is that most companies require at least some resistance to outlandish CEO pay matched with far too little shareholder return.

Some shareholder worst-case scenarios
GMI revealed the 10 worst-scoring companies in its analysis. Here are a few examples; you might recognize from recent headlines about shareholder unfriendly behavior.

Abercrombie & Fitch (NYS: ANF) : This retailer's board deemed it reasonable to pay CEO Mike Jeffries a $4 million lump sum to limit his use of the corporate jet. The fact that this company makes the list isn't surprising. (There are plenty of reasons to avoid investing in this company.)

Nabors Industries (NYS: NBR) : This company's not very neighborly. Not only will Eugene Isenberg receive a $100 million payout for his "role change" to chairman from his previous role as chairman and CEO, but the Securities and Exchange Commission is also investigating perks and benefits enjoyed by the officers and directors of the company.

Yahoo! (NAS: YHOO) : Carol Bartz's tenure at Yahoo! won't go down in history as a resounding success for shareholders, but she was expected to receive about $14 million in cash and stock options as the consolation prize for her ouster. Bartz referred to Yahoo!'s board -- the very people who give the thumbs-up on compensation and golden parachutes -- as "doofuses," and that actually could have triggered the "non-disparagement" clause in her contract. Last I heard, said doofuses (hey, her word, not mine) were expected to pay it out anyway.

Aetna (NYS: AET) : Shareholders may have felt more than a little bit sick after outgoing chairman Ron Williams received a $68.7 million golden parachute last April. He also wasn't hurting in the perks department: The goodies he received in 2010 included $257,000 for non-business-related use of the corporate jet, $20,000 for help figuring out how to spend all that money (excuse me, "financial planning"), and nearly $16,000 for a car provided at shareholders' expense.

Although many of these examples refer to outgoing CEOs and their exit packages, bear in mind that there's already a cultural precedent between board and management that will likely continue into the future unless shareholders have been doing something to stop it. Investor, beware.

Fight or flight
Companies like these ruin things for shareholders who care about reasonable pay for real performance. After all, such outrageous outliers skew the entire compensation landscape, and allow boards and managements to justify paying egregious pay for too little reward. The fact that peer groups come into play in devising compensation schemes points to the rigged game these folks play with shareholder money.

If you own some of the worst companies in terms of outrageous CEO pay, you'd best either rethink your holdings or brace yourself for the worst (and be prepared to use your proxy to exercise your new right to say on pay). In corporate America today, well-paid CEOs don't always indicate well-run companies, or well-rewarded shareholders, for that matter.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Yahoo. Motley Fool newsletter services have recommended buying shares of Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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