This Day On The Street
Continue to site
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

Highly Paid CEOs Like Warren Buffett May Be Worth Every Million

NEW YORK (TheStreet) -- The question of whether a CEO is worth the price a company pays often boils down to measurable factors, like stock price. But that salary might also be worth it for other, less tangible reasons.

Last December, Prof. Sydney Finkelstein of the Tuck School of Business at Dartmouth had the heads of J.C. Penney (JCP), Sears Holdings (SHLD), BlackBerry (BBRY) and Microsoft (MSFT) high up on his annual rating of the "Worst CEOs of 2013." Last week, the employees and customers of Market Basket, a grocery store chain in New England, protested the firing of Arthur T. Demoulas, the former CEO. Other than those holding a short position, it is difficult to imagine anyone working against the replacement of the leaders of Blackberry, Sears Holdings and others on Finkelstein's list.

My article last week on TheStreet detailed the extensive damage overpaid CEOs can cause. This article takes the opposite approach, examining why those like Arthur T. Demoulas deserve every penny of the $10.5 million in average compensation received by the heads of members of the Standard & Poor's 500 Index (SPY).

Read More: 4 Reasons Why Private Equity Firms Like KKR Offer the Best of Capitalism

A CEO like Demoulas who engenders loyalty may well be worth the money providing that dedication results from an outstanding performance as head of the company. Devotion from the employees is significant, but when it comes from all of the stakeholders in a commercial enterprise -- customers, shareholders, lenders, the local community, etc. -- it becomes a surer sign of a company's growth and stability. Under such a leader, workers stay, customers maintain accounts, those who own the stock are in it for the long term, lenders extend preferential conditions on debt matters and community leaders will work with the business to make the local climate conducive to its operations.

No one doubts that Warren Buffett, CEO of Berkshire Hathaway (BRK.A), is such a leader. His magnificent success with his company has resulted in extraordinary success for shareholders and his company has been described as a corporate utopia.

When a CEO fails in that critical loyalty test, it shows up most obviously in high short floats for publicly traded companies with Blackberry (31.79%), J.C.Penney (26.73%) and Sears Holdings (19.91%) -- all several times above the level of 5% that is considered to be troubling for a business.

Reward the Talent

There is a tremendous demand for experienced high level executives from private equity funds and others. A previous piece on TheStreet detailed how these institutional investors will take over companies seeking to sell for a profit at a later date. To do that right requires experienced executives in that industry group. Private equity compensation can many times exceed that of C-level executives at companies. For a business to prosper, it must keep its best and most experienced executives -- and that costs a lot in a competitive marketplace for top talent.

Read More: CEO Pay Destroys Companies, Communities and Capitalism

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
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $125.85 -2.20%
FB $77.62 -1.50%
GOOG $531.81 -1.70%
TSLA $233.09 1.10%
YHOO $41.32 -1.70%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs