This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

CEO Pay Destroys Companies, Communities, Countries and Capitalism

Stocks in this article: LNG GBL ORCL SD

NEW YORK (TheStreet) -- Shareholders at Cheniere Energy (LNG), Gamco Investors (GBL), Oracle  (ORCL), Sandridge Energy (SD) and other firms with the highest paid chief executive officers might want to sell based on a study that shows that "CEOs' pay is negatively related to future stock returns for periods up to three years after sorting on pay."

However, many times the reason for the outsized pay package for a CEO is based on outsized performance by the stock price. In that case, the CEO might well deserve every penny (or every million). This article is part of a two-part series examining the issue of CEO compensation and its impact.

There are many who would agree with the study by Professor Michael Cooper from the University of Utah, Huseyin Gulen from Purdue University, and P. Raghavenda Rau with the University of Cambridge, and the University of California at Berkeley contend that excessive CEO compensation can damage or destroy companies, communities, countries, and the culture of capitalism. Much of what drives the stock price of a company has nothing to do with its management. How a sector is doing determines much of the share price level of a publicly traded company. That in itself should bring a CEO's compensation into question, reducing the emphasis on share price.

Read More: Is It Safe to Fly Malaysia Airlines?

If the study is correct, stakeholders are the first to suffer, as excessive CEO compensation weakens companies.

Charif Souki, the CEO of Cheniere Energy, made nearly $142 million last year. That is nearly 14 times the average compensation of $10.5 million for a CEO of a member of the Standard & Poor's 500 Index. The average CEO makes 257 times the national average for a worker (almost $41,000). That means that Chrif Souki made 3463 times what the average worker did last year in America. At Cheniere Energy, the revenue per employee is almost $636,000.

If Cheniere Energy used some of Souki's 11-figure paycheck to hire more workers, it could ideally gain about $2.2 billion more in revenue. The company currently has annual sales of less than $270 million.

Obviously a company can't ramp revenue simply by adding employees. However, comparing the degree of above-average pay of a CEO with the revenue for employee figure, we can project an ideal revenue figure that serves as an indicator of how much earnings potential a company like Cheniere is leaving on the table.

CEO compensation can, in fact, be seen as a zero sum proposition. Every dollar that goes to the CEO for millions in pay or perks such as a private jet is one less that goes to sales personnel to sell more, to business development staff to develop more business, and to researchers to research more ways to sell more and develop more business. There are less funds available to hire consultants, buy more advertising to sell products, or buy advanced software programs to operate the company more efficiently and more effectively, as just some examples.  

The money that goes to CEOs inevitably shortchanges many other vital corporate functions. That misallocation of resources can only weaken a company, especially a smaller one with fewer resources, and dilute the stock performance over the long term.


CEO Compensation*

Revenue Per Employee

Number of employees that could have been hired at the S&P average CEO pay of $10.5 million

Potential revenue lost** 

Cheniere Energy

$142 million*



$ 2.2 billion

Gameco Investors

$85 million

$2 million


$3.4 billion

Oracle Corp.

$78.4 million



$520 million

Sandridge Energy

$71 million

$1 million


$1.467 billion

Sources: ALF CIO Corporate Paywatch and financial websites; *CEO compensation and other figures are approximated; **lost revenue is calculated by taking the number of employees that could have been hired based on average S&P pay and then multiplying that times the average revenue per employee for that company.

Read More: How to 'Piggyback' Nelson Peltz's Interest in Bank of New York

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs