ROE v. Paid: No Tears in Telecom's Boardrooms

Investors haven't exactly gotten rich investing in telecommunications-services companies in 2002, but the sector's chief executives have made out quite nicely.

Of the 12 telecom stocks in the S&P 500, only Nextel(NXTL) ended 2002 in positive territory. According to the ROE v. Paid Telecom chart, an even six notched five-year average return on equity above 15% -- the unofficial bar set for solid ROE performance. Nonetheless, six telecom CEOs raked in eight-figure salaries in 2002, according to figures provided by compensation-tracker eComponline.com -- including a few with negative ROEs.

Whose pay is difficult to swallow? AT&T (T) hasn't exactly shot the lights out from a return on equity basis -- the telecom giant posted an ROE of negative 40.89% in 2002 and its five-year average is 1.1%. Chief Executive and Chairman Dave Dorman pulled in $12.9 million last year, but it's hard to pin the company's poor use of capital on him, since he only assumed the top slot last year.

What the ROE v. Paid list doesn't show is that former CEO C. Michael Armstrong brought in $18.4 million in compensation in 2002. While the fat payouts at AT&T can be partly explained by the "size matters" principle in corporate compensation -- generally, the bigger payouts tend to occur at the bigger companies -- it's still a hefty two-person take, especially by the standards of long-suffering AT&T shareholders.

The ROE v. Paid chart below measures the average return on equity over the past five years for each of the 12 telecom companies in the S&P 500. ROE is a handy measure of how effectively a CEO puts shareholder money to use. For the chart, we set the bar for solid performance at 15% average ROE over the past five years -- an imperfect gauge because of apples-to-oranges comparison across some sectors and occasional one-year flukes that throw off a company's five-year average. Nonetheless, readers can compare ROEs within subsectors to get a better sense of how a company stacks up.

As a comparison, the chart also lists how much the company's chief made in pay, bonus and options last year (or the most recent year available), according to compensation-tracker eComponline, to let readers decide whether the chieftains earned their keep.

Want to know how the rest of the telco CEOs measured up in 2002? Check out the list.

Telecom Disconnect Of the 12 telecom-services companies in the S&P 500, only one stock was in the black for 2002. But don't worry: All the chief executives managed just fine -- the shareholders were left on the hook. Five of them netted eight-figure compensations, including two whose ROE doesn't measure up. (Companies whose five-year ROE averages are above 15% are in bold, as are CEOs with compensation packages in the Top 100.)
Company (Ticker Symbol)	5-yr ROE	1-yr ROE	Chief Executive Compensation Rank in 500 Richest CEOs in 2002	Stock Return in 2002
SBC Communications (SBC)	29.1%	17.1%	Edward Whitacre $21,256,426 Top 100	-28%
Qwest Communications (Q)	25.9	-10.32	Richard Notebaert N/A	-65%
Verizon Communications (VZ)	23.5	12.52	Ivan Seidenberg $32,560 Not in Top 500	-15%

Click here to see entire table.

>To order reprints of this article, click here: Reprints