Exploring Overstock's Discount

Byrne does not take a salary. He owns about one-third of all Overstock shares. He feels his "interests are aligned with shareholders" (per an SEC filing) and has declined incentive compensation each and every year.

This is refreshing to see and, unfortunately, unusual. Large share ownership rarely prevents CEOs from taking more, even though their ownership already puts them in an incentive position. For example, Ralph Lauren of Ralph Lauren(RL Quote) and Jim McCann of 1-800-Flowers.com(FLWS Quote) are among the ranks of leaders who have large ownership positions in their companies -- over 40% and 50%, respectively -- yet still accept huge amounts of incentive compensation. It's costly to other shareholders and it's exploitive because their share ownership gives them effective control of the board of directors. It's rare to find a CEO, like Byrne, who says "no thanks" when it comes to incentive compensation.

If you study the operating history of Overstock in detail, you have to be impressed with Byrne the businessman. There is no precedent in the history of retail for what he has accomplished.

I expect Overstock revenue to exceed $900 million this year. That represents a tenfold revenue increase is just four years. It's been accomplished with a tiny amount of capital, as only $66.5 million of net has been deployed. This includes all equity and debt issuance, with adjustments for current cash and repurchases.

Look carefully at the facts surrounding the early operating history of Overstock and this business story is even more amazing. Competitors had several times more capital than Overstock. They had business relationships and ties to large companies that gave them significant competitive advantages. Whether you like Byrne or not, any objective observer that takes the time to review the facts has to acknowledge his business accomplishments.