Is Any CEO Worth a Fat Paycheck?

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In an article from U.S. News & World Report last week, writer Rick Newman posits that while Americans have grown used to CEOs mismanaging their companies -- and their companies' finances -- some CEOs are worth their wallets in gold.

Drawing from a list of a dozen executives named in a recent report from the Corporate Library, Newman picked five CEOs who he believes deserve every penny of what they're getting.

Who made the list? The most notable member is arguably Apple's (Nasdaq: AAPL  ) Steve Jobs, with AutoZone's (NYSE: AZO  ) William Rhodes also making the cut. You'll also find the leaders of Nucor (NYSE: NUE  ) , Humana (NYSE: HUM  ) , and Darden Restaurants (NYSE: DRI  ) among the top five.

Now, make no mistake: Each of these CEOs garners millions in wages each year. But Newman, citing The Corporate Library's report, says their performance yields every right for them to do so:

(T)he CEOs at these companies have a record of success that justifies their pay. All 12 companies [in The Corporate Library's report] have demonstrated consistent, long-term profitability that exceeds the average for their industries. And over the past five years, all have outperformed the S&P 500 stock index.

Do you think the likes of Jobs and Rhodes deserve megamillions per year? What's your benchmark for what makes a good, solid CEO? What would you pay them? Chime in with your thoughts in the comments box below.

Hope Nelson-Pope is online coordinating editor at The Motley Fool. She owns shares of Apple, but of none of the other companies mentioned here. Apple is a Motley Fool Stock Advisor selection. The Motley Fool has a disclosure policy.

Read/Post Comments (17) | Recommend This Article (13)

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  • Report this Comment On December 07, 2009, at 12:01 PM, Observero0 wrote:

    Maybe I'm missing something, but I see no reason for an employee (e.g., CEO, director, etc.) to make more than 100X minimum wage (including all company provided benefits). I can understand more for the originator of the company since he/she took the risk, but not for an employee. The monies should be returned to the employees that helped the CEO, directors, etc. to be successful. The monies also should be returned to the stock holders.

  • Report this Comment On December 07, 2009, at 12:22 PM, rick1123581321 wrote:

    If I remember correctly Steve Jobs receives a salary of $1.00 from Apple. The monies that he makes are from stocks that he owns in said company. That being said he was given stock and options when he returned to Apple as the iCEO.

  • Report this Comment On December 07, 2009, at 12:31 PM, notjumping wrote:

    I do agree with the comments posted by Observero0 but I'm not that concerned about CEO pay in privately-owned companies that run their businesses effectively. We should all be rewarded by a job well done. It's those clueless fat cats sucking off the government teat that I despise. From the moment a company - any company - takes a single dollar in government money to right the wrongs the company has made, that is no longer a private company. It's a company owned by our government. We need to put a stop to our corporate welfare system that makes billionaires out of crooks, thieves, and swindlers. And idiots. As a government-owned entity, rules and regulations - and limitations - kick in the moment the government cash is accepted. And there is no reason for rewarding bad or stupid behavior - yours, mine, anybody's. I read elsewhere today some AIG execs are threatening to leave because their paychecks are going to reflect the piss-poor job they've done lately. Boo-hoo. To them, I say adios, losers. Nobody needs you. Nobody wants you. Disappear.

  • Report this Comment On December 07, 2009, at 1:08 PM, speedieone wrote:

    Somewhere along the way corporate boards forgot that they were supposed to reward for a job well done and not pay or guarantee a salary based on expectation of performance. Is the pool of worthy CEO's so shallow that they all deserve golden parachutes if they are fired for performing poorly? I personally believe that all CEO salaries should be keyed to a companies profit and loss statement.

  • Report this Comment On December 07, 2009, at 2:42 PM, aeroberry wrote:

    The assumption that a company's performance is directly attributable to the vision, decision making capability or insight of the CEO is never challenged. It is a fine thing to link compensation to performance but how do you know that the company would not have flourished under any other CEO? That is the case with many companies whose product offering, business structure, market segments, etc... happen to be in-line with a market boom. That does not imply that the CEO is responsible for the revenue that walks in the door. In some cases it is the case, but in most cases, I think a CEO is being rewarded for occupying an office and going with the flow. When the company tanks, it is always due to unforseen circumstances. If you expect that much in pay, you should be expected to have the insight not get caught out by the unforseen.

    And why do we allow the trickery of the "$1.0 salary" to go on. Compensation whether straight up or bonuses, or other forms (usually of tax-sheltered variety) is compensation. It seems like enough people went on TV and made statements about how "special" these people are and how their skills demand that level of pay and everybody believed it.

    I agree with Observo0 and notjumping... If the company does well, all employees should get a share of profits. The pay structure is already inline with the organizational strcuture, why are the profits exclusive to the fat cats?

  • Report this Comment On December 07, 2009, at 5:51 PM, jc09058 wrote:

    When is it too much? What is a fair wage? What is fair compensation? These are questions that have been asked time and time again throughout the years.

    I have always felt that if you can not live on $100,000 a year, you are doing some seriously wrong with your budget. Compensation up to 50% of your base salary is the highest you deserve for a reward well done. Anything else is an excessive waste of money on any single individual.

    The rest belongs to the owners (shareholders). If an employee wishes to be an owner then like everyone else, s/he can purchase like all the rest of the owners.

    If the owners (shareholders) wish to share in the wealth by giving up some of it shares then an equal distribution between all employees is fair because it took everyone of those employees to make the company perform in the prior year.

    Like any owner that takes a risk, stock given out to employees should be held in escrow until two years after the employee leaves the company, at a minimum. Of course, if the company doesn't perform then a percentage of the stock returns to the company based on the percentage of that downturn. There should be equal risk in both directions.

    The board should be held directly fiscally responsible in all of the decisions made by it or those appointed below them. How? 65% of their net wealth will be in the company stock. That stock held in escrow until after they leave in 5 years time.

    Lastly, once an individual is on the board of a corporation, they can not serve on any other corporate board. Their job is to represent the owners for that corporation and their only focus is on that corporation. That is what they are there for.

    Harsh? Severe? Maybe but after the excesses of the last 30 years, why not.

  • Report this Comment On December 07, 2009, at 6:59 PM, GregTrocchia wrote:

    I disagree with jc09058 in that payment ought not be based off what a hypothetical CEO (or any other employee, for that matter) "ought" to "need" to live. This, in essence, is really Marx's old "From each according to his ability to each according to his needs" restated. As a shareholder, I want to get maximum value for money for all employee compensation, from the CEO down. In some cases this may mean laying out lots of money for a CEO that will make the company yet larger amounts of money.

    As to aeroberry's comment, I would assert that Steve Jobs is a good example of a CEO that has made a huge amount of difference in the value of Apple. FOr those with short memories, I remind you that after Jobs was ousted from running Apple, things were so dire that in June 1997 WIred magazine put Apple's logo on the cover with a biblical-style crown of thorns and a single word "Pray". Yes, things were that bad. Microsoft had to provide some quiet support for Apple to make sure that it did not go under taking with it the only real competitor in the OS market for personal computers at a time when it was under heavy anti-trust scrutiny. After Jobs returned, Apple began going from strength to strength, introducing the iPod, iPhone, and OSX.

    Nor is Apple the only company where this type of Top-Down revolution happened. Lou Gerstner was similarly instrumental at turning around the fortunes of IBM and Lee Iococca oversaw a similar revival at Chrysler, which demonstrates that this effect is not confined to the computer business. In addition, lest you think that this kind of value creation is unique to corporate turnarounds, I give you Herb Kelleher who made Southwest Airlines a success at a time when many people considered "successful airline" to be an oxymoron.

    From my perspective, the problem is not that we lavish money on those CEOs who have demonstrably added many times such sums to the value of the company. The problem is that we pay CEOs who have done a mediocre job at value creation or, worse still, oversaw value destruction in similarly lavish fashion.

  • Report this Comment On December 07, 2009, at 7:58 PM, jomueller1 wrote:

    CEOs who do a good job deserve a good pay. CEOs who perform badly should pay rent for the office they use. How good is good? That is a philosophical question and I may offend people by saying that nobody should earn tens of millions. What for? The money for the company is investor's money and the people in the companies do the ground work and should not be considered dumb slaves. So it is fair that they all get a share, no matter if it is dividends, profit sharing or a bonus.

    But we should not forget all those overpaid show business people. No golfer or artist is worth the tens of millions they get paid. That money has been taken away from people who have no choice in the matter.

    If someone wants to call himself human he has to share and not work on the greed only. Live and let live!

  • Report this Comment On December 07, 2009, at 8:17 PM, xetn wrote:

    Compensation of executives is concern of the board of directors and shareholders. If an executive negotiates a multi-million dollar pay package that is only the business of that company, not the subjective opinion of the government or anyone else. If you disapprove of an executive pay package, don't invest in that company. That and your complaining is your only rights.

    As far as compensation based on performance, perhaps we should insist that all members of government should take a 90% cut in their pay, since nothing they do is in our best interest; only the interest of themselves and their benefactors.

  • Report this Comment On December 07, 2009, at 10:45 PM, Gardnermiles wrote:

    A90percent government pay cut for poor performance is a little harsh. How about 84 percent? If the spread between the corrupt,greedy,rich and the poor widens much more the poor will be unable to feed the greedy rich by purchasing their wares. It is a shame that when times were going well: Americans had to save those few dollars by purchasing foreign junk. The foreign junk improved though and left American business's out in the cold. Between American greed and foreign purchases America can only blame itself for it's monetary stupidity.

  • Report this Comment On December 07, 2009, at 10:57 PM, Gardnermiles wrote:

    Now that we have seen how much damage is wrought by purchasing foreign made products let's reverse the trend and put more Americans back to work through purchasing only American products. Sure most times American products cost a little more but didn't this recession, depression, monetary collapse cost even more? Many toys made overseas are toxic to children and not up to American Standards. Often a well made American product costs less in the long run through it's durability and long term service. It takes us all buying American goods to return America to where it should be.

  • Report this Comment On December 08, 2009, at 1:48 AM, ET69 wrote:

    I don't think its money that really interests these guys. Its about the POWER and their monumental egos, whether its Rockefeller, Melon ,Gates, Lay or Buffet. All type A personalities obsessed with CONTROL. The money is for show..."look at me!" I think if they had to choose between money and power ---they would choose power. Of course in a capitalist society money IS power and thus they seek it at all costs. They often end up being sociopaths. The dark side is strong for them. The system corrupts. SAD.......

  • Report this Comment On December 08, 2009, at 3:14 PM, jjackson21 wrote:

    How about paying executives/officers based on two pieces of criteria

    1) A CEO, VP, etc base salary should be based on a multiple of the average of the non-officer salary of the associates that work for / are contracted by the company. If the average salary of the company associate is 50K, pay the CEO 10x that average, a senior VP 8x, etc. As the employees working for the company are better compensated, the officers are better compensated. Maybe the multiplier should be 15x, but the two should be tied. A CEO should not get better compensated while their employees get less compensation.

    2) A CEO / officer should be paid a bonus up to their base compensation based on company performance, up to their base salary for hitting all goals.

    So, if a company associate makes 50K / year, and the company performs well (all goals met), the CEO's maximum compensation (pary, stock options, bonuses, insurance, etc), with a 10x multiplier would be one million dollars. Tie executive compensation to a factor of how well the line associates are compensated, plus a reasonable bonus tied to performance.

  • Report this Comment On January 14, 2010, at 9:39 AM, efhouse wrote:

    Following up on jjackson21:

    I have observed that at lower levels of corporations, supervisors are paid about 1x to 2x the pay of their direct reports, which seems about right to me. A new manager will typically be a promoted high-performing employee that was in the upper part of their earning scale. The new manager's salary would be slightly above their previous endpoint, making them a little more than 1x their direct reports, or even possibly slightly below some of the best and brightest beneath them. As the manager gains experience, he/she will eventually move up toward the 2x level.

    Many management studies suggest that a supervisor can supervise about 5-9 (avg 7) direct reports. Maybe more in some fields, maybe less in others. But in the large, it gives you a rough fanout for the organization.

    If you follow the two above rules, you develop an appropriate compensation range for the CEO based on the number of employees and the compensation of the entry-level employees:

    Employee: x

    Manager of 7: 2x

    Manager of 7 managers (~55 total): 4x

    Manager of ~400 employees: 8x

    and so on up to the CEO. As you move up the ladder, more of the % between the 1x and 2x should be in the form of deferred incentive compensation versus cash salary.

    All IMNSHO

  • Report this Comment On January 14, 2010, at 9:42 AM, efhouse wrote:

    And a brief followup: the above guidelines are for use by shareholders and Boards of Directors. Not for government pay czars, Congressmen, or other gov't entities to try to enforce.

  • Report this Comment On January 14, 2010, at 9:44 AM, TMFTomGardner wrote:

    Yes! :)

  • Report this Comment On January 14, 2010, at 10:06 AM, bigcat1969 wrote:

    It's much like the debate about Wall Street bonuses. If a guy makes you billions of dollars more than a 'normal' employee doing the job would have generated for your company, then he is worth a hefty bonus. If he only creates the same wealth that the 'normal' employee would, then his worth is negligible. Its like value in baseball. Babe Ruthian heroes are worth a good fraction of the worth of the franchise while Joe Average is worth his replacement cost.

    CEOs are the same, but everyone wants to believe that they have a Steve Jobs at the helm and should pay him accordingly. In fact most CEOs have little real value, because they could be replaced in a heartbeat with someone just as incompetent as they are.

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