In the business world, it's interesting to see not only how various stocks and mutual funds are valued, but also how the people who run them are valued.
At FundAlarm.com this month, Roy Weitz pointed out how differently some mutual-fund managers are paid. He noted, for example, that there's a rule at the Bridgeway fund family that the highest-paid employee can't earn more than seven times what the lowest-paid worker earns. Top dog John Montgomery, therefore, doesn't take home millions each year. He reportedly earned $403,533 in 2003, for example.
Contrast that with Mario Gabelli of Gabelli Asset Management. Gabelli took home some $55 million in 2004 -- which is likely more than 1,000 times higher than the lowest-paid Gabelli employee. (If the receptionist or custodian or mail clerk there earns $56,000 per year, I apologize for my error.) Of that $55 million, $11 million is an "incentive" fee, which makes one wonder why a company's owner would need such an incentive -- especially in addition to an already generous $44 million salary.
These differences point to the importance of being choosy when you invest in mutual funds. Mutual funds can help you financially by putting your money to work without much effort on your part. But you need to park your hard-earned cash in funds with solid track records, reasonable fees, and outstanding managers. Let us help you find such top-notch funds -- grab a free trial of our Champion Funds newsletter to see all our recent recommendations.
Finally, note that outlandish pay isn't restricted to some mutual-fund managers. According to Business Week, the average CEO of a major corporation in 2000 received about 531 times what the average hourly worker earned. That's up from a multiple of 85 in 1990 and 42 in 1980. The AFL-CIO Executive PayWatch listed the five most highly paid CEOs in 2004 as Terry Semel of Yahoo!
Investors evaluating individual companies as possible investments would do well to take executive compensation into account. If the CEO isn't really earning his or her paycheck, then that shareholder money is being wasted.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
