This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Do Lower CEO Pay Ratios Lead To High ROI For These 5 Stocks?

James Dennin, Kapitall: The Swiss rejected a measure to cap CEO pay ratios. We took a closer look at stocks with a lower pay gap. 

Post-financial crisis, one aspect of the Dodd-Frank Act's proposed reforms to address improprieties in the finance sector was to get the Securities and Exchange Commission (SEC) to start monitoring CEO pay ratios.

Read more from Kapitall: Green Investing: Four Stocks With Falling Emissions and Rising Profits

Calculated by comparing the total compensation of a firm's chief executive with the median salary for employees, the number was supposed make executives more wary of golden parachutes and elaborate bonuses if regular employees aren't getting in on the action. 

However, after two years, this information still isn't available to the general public. Part of the reason is that pay-packages, especially among a company's leadership, are complicated. Most are related to performance. Many include stock which you're not allowed to sell for a certain period of time. And that makes a simple ratio between the two numbers all the more complicated to measure.

That didn't stop  Bloomberg from trying to figure it out, and then publishing a list of their own. 

By looking at CEO pay, which companies are already required to disclose, and average median pay by industry (which is monitored by the government) experts at Bloomberg were able to come up with an approximation for the CEO pay ratio. The list went viral when eight of the companies on the list had ratios in excess of 1000 (which means that the CEO is paid what amounts to a thousand times their industry's median income.) 

Investing ideas

Some of the companies on the list disagreed with the methodology, and took an opportunity to attach comments to the figure. Bloomberg's list covers the top 250 companies  on the S&P 500 by ratio. 

We decided to look at some of the least egregious offenders, with ratios of 176 or lower, and cross-referenced them with a screen for a positive return on investment (ROI). ROI is a performance metric that assesses the profitability of an investment by dividing the benefit of an investment by its cost. 

Only five stocks with positive ROI and more reasonable CEO pay ratios made it through our screen.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs