Is Ford CEO Alan Mulally Overpaid?

Over the past 30 years, the U.S. has seen CEO compensation rates increase quicker than ever. Intense debates have raged throughout the country over CEOs who were setting their own outrageous pay scales. It's an especially a hot topic when companies fail under terrible management, as was the case with General Motors (NYSE: GM  ) and Chrysler. Ford (NYSE: F  ) avoided bankruptcy and a taxpayer-funded bailout, but does that justify Alan Mulally's $20.8 million compensation?

Comparisons
To put that figure in perspective, let's look at other CEOs across Detroit. GM CEO Dan Akerson received $11.1 million in 2012, barely over half of Mulally's pay. In fact, if you combine the three top salaries at GM -- $11.1 million, $6.6 million, $5.4 million -- you still barely top Mulally's pay alone.

The story is similar at Chrsyler, where the CEO hasn't taken a cash salary since he came on board in 2009. If you go down the list of other top executives at Chrysler, you find that Mulally's pay is almost double that of the top three salaries combined. There is a caveat here, as Chrysler's CEO gets a big paycheck from also being the Fiat CEO -- for a combined total of $22.2 million in compensation. That's right in the realm of what Mulally received. 

Part of the reason GM's CEO pay looks so much lower is that the U.S. Treasury -- and rightfully so -- has to approve the pay scales of GM's top executives. The government will lift the pay restrictions when its remaining shares of GM are sold off.

Worth every penny
As a shareholder in both Ford and GM -- as well as a taxpayer -- I strongly believe Mulally deserves to be paid much more than his counterparts. Consider that the U.S. government is likely to lose around $11.5 billion out of the nearly $50 billion spent to save GM. Thanks to Mulally and his decisions, there's no such situation with Ford. 

When Mulally came on board in 2006, he took out a huge loan to help fund the company's restructuring. It was a lifeline that Ford soon needed, as the automaker would lose $12.6 billion that year -- nearly a $2,000 loss for every vehicle sold. When taking out the loan, Mulally said he wanted to make sure the company could survive unforeseen events -- like a recession. As we all know, there was indeed a huge recession waiting right around the corner. 

Through Mulally's "One Ford" strategy, Ford was able to fix its massive losses and returned to profitability by 2009. It was an incredibly quick turnaround for a company that had long been producing terrible vehicles. That's what a good leader and CEO does, and those results will get you paid -- and handsomely. In reality, Mulally's compensation isn't that outlandish and doesn't even rank him in the top 50 on Forbes' 2012 CEO compensation list.

Bottom line
When investing, the most important thing -- in my opinion -- is finding proven and talented management. Ford's executive team is second to none in Detroit and has positioned Ford to succeed for many years to come. Ford is led by the industry's best CEO, and I'd be thrilled to give him a large raise -- if only he would agree to delay his retirement.

Yes, Mulally makes a lot of money, but he's earned every penny.

Worried about Ford?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.


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