10 Highest-Paid CEOs in 2009
NEW YORK (
) -- According to
Forbes'
2009 CEO compensation data, the 500 biggest companies in the U.S. slashed CEO pay by a collective 30% from 2008 to 2009. The pay reduction sounds impressive, but consider these points:
- The inflation-adjusted earnings-per-share of the S&P 500 plummeted 81% from January 2008 to January 2009.
- The U.S. unemployment rate climbed by a relative 54% during the same period (both data points courtesy of Robert Shiller).
This data paints a disturbing picture -- even with substantial pay cuts, the average CEO is getting richer at the expense of shareholder equity.
Last week,
TheStreet highlighted the macroeconomic impact of excessive CEO compensation
with specific attention to unemployment and shareholder returns. An analysis of the 10 highest-paid active-CEOs in 2008 demonstrated that above-average executive compensation did not translate to above-average returns for shareholders.
Now,
TheStreet
will look at the 10 highest-paid CEOs in 2009 as ranked by
Forbes
.
Note: This list includes only active CEOs for which full-year data was available -- complete information of Forbes' ranking methodology is available on Forbes.com. Data regarding dividends and the average American salary is cited from company 10-K filings and the AFL-CIO respectively.
----------------------------------
10. Starbucks
- CEO: Howard D. Schultz
- 2009 Total Compensation: $29,210,000
- Dividends Paid to Shareholders: $0
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 911 times
Howard Schultz resumed his role as
Starbucks
(SBUX) - Get Report
CEO in January 2008, around the same time that $4 coffee became a consumer-discretionary item. With Schultz back at the helm, Starbucks has weathered the Great Recession by
closing underperforming stores
and
launching VIA, a Starbucks-branded instant coffee
.
Starbucks shareholders have enjoyed a 25% total return since January 2008, and the company paid its first dividend in April 2010, demonstrating a managerial commitment to rewarding shareholders. With cost-cutting measures now in the past, Schultz's ongoing value to shareholders will rest in his ability to reinvent Starbucks' stagnant business model. Schultz was the man who successfully brought the European-café concept to the American mainstream, so it's hard to imagine a better man for the job.
9. Polo Ralph Lauren
- CEO: Ralph Lauren
- 2009 Total Compensation: $30,050,000
- Dividends Paid to Shareholders: $19,900,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 938 times
At $30 million, Ralph Lauren's 2009 compensation package was larger than all of the dividends paid to
Polo Ralph Lauren
(RL) - Get Report
shareholders in the same period.
With licensing revenue in a multiyear decline
, Polo Ralph Lauren needs to review its operations and strike a balance between revenue growth and profitability. Whether or not Ralph Lauren is the man for the job is open to debate.
In June, the founder and namesake of Polo Ralph Lauren dumped $75 million worth of stock on the open market
-- not exactly a vote of confidence for common shareholders. In order to deliver positive value to shareholders, Polo Ralph Lauren needs a chief executive who is both a prudent business manager (with a strong understanding of retail globalization) and a visionary who understands "lifestyle" brand management (Lauren is no doubt the latter).
8. Philip Morris International
- CEO: Louis C. Camilleri
- 2009 Total Compensation: $30,080,000
- Dividends Paid to Shareholders: $4,327,000,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 939 times
CEO Louis Camilleri is a multilingual executive with a business development background -- this bodes well for growth-hungry shareholders. While
Altria
(MO) - Get Report
is largely a domestic tobacco company
operating under the continuing threat of taxation
and litigation,
Philip Morris
(PM) - Get Report
is a nimbler organization with more international growth opportunities.
In 2009, Camilleri's $30 milllion compensation package was less than 1% of the $4.3 billion paid in dividends to Philip Morris shareholders. As long as Camilleri can deliver
any
growth in free cash flow, shareholders will have little to complain about (provided that executive compensation grows proportionally).
7. Verizon Communications
- CEO: Ivan G. Seidenberg
- 2009 Total Compensation: $30,930,000
- Dividends Paid to Shareholders: $5,271,000,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 965 times
Ivan Seidenberg's 2009 compensation package of $31 million seems like a pittance compared with the $5.3 billion that
Verizon Communications
(VZ) - Get Report
shareholders received in dividends during the same period, but how would shareholders feel if the dividend were cut?
Just to clarify, there is no imminent threat of a Verizon dividend cut -- but cautious investors should take note,
Verizon Communications does not pass our liability-adjusted dividend acid-test formula
. And,
at today's valuation, the projected return for long-term Verizon shareholders is also limited
.
6. Nvidia
- CEO: Jen-Hsun Huang
- 2009 Total Compensation: $31,400,000
- Dividends Paid to Shareholders: $0
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 980 times
Nvidia is the worst-performing S&P 500 stock in 2010
and has delivered virtually no shareholder return over the last five years. CEO Jen-Hsun Huang cannot be oblivious to this fact -- as of May 2010, Huang held approximately 3.4% of all outstanding Nvidia shares (which is nearly three times the ownership percentage of the average CEO).
With a 2009 compensation package greater than $31 million, Huang is being paid to wait -- shareholders should ask for similar treatment. As of this quarter,
Nvidia
(NVDA) - Get Report
holds $1.75 billion in cash or cash equivalents that can be used to fund a dividend.
5. Gilead Sciences
- CEO: John C. Martin
- 2009 Total Compensation: $60,400,000
- Dividends Paid to Shareholders: $0
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 1,885 times
Dr. John C. Martin holds a Ph.D in organic chemistry, an M.B.A. in marketing, and sits on the boards of the California Healthcare Institute, Gen-Probe Inc. and the External Scientific Advisory Board of the University of California School of Global Health. For the average investor, it's hard to dismiss the value of Dr. Martin's credentials.
If
Gilead Sciences
(GILD) - Get Report
can continue delivering and improving HIV/AIDS treatments under Martin's watch -- it's doubtful that his compensation will generate (or deserve) animosity from shareholders or the public.
4. Yum! Brands
- CEO: David C. Novak
- 2009 Total Compensation: $76,490,000
- Dividends Paid to Shareholders: $362,000,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 2,387 times
From a shareholder perspective,
Yum! Brands
(YUM) - Get Report
has been a gem, delivering over 100% in total return over the last five years. From a public relations perspective, Yum! is far less attractive.
According to
Payscale.com
, David Novak's hourly wage in 2009 was approximately 5,000 times greater than the average fast-food cashier. As CEO of the operating entity behind Taco Bell, Pizza Hut and KFC, Novak highlights the growing rift between America's highest and lowest earners.
3. Occidental Petroleum
- CEO: Ray R. Irani
- 2009 Total Compensation: $103,070,000
- Dividends Paid to Shareholders: $1,063,000,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 3,216 times
Since 2005,
Occidental Petroleum's
(OXY) - Get Report
relative stock performance has far outpaced
Exxon Mobil
(XOM) - Get Report
,
Chevron
(CVX) - Get Report
and
ConocoPhillips
(COP) - Get Report
. The question investors must ask is whether this outperformance is a technical anomaly or the result of superior management by CEO Ray R. Irani.
Of the four oil companies mentioned, only Chevron navigated the recession better than Occidental (Chevron shed 25% of net income, Occidental dropped 44%, Exxon lost 46% and ConocoPhillips fell 64%). Using 10-year average returns-on-invested-capital, Occidental Petroleum is twice as profitable as ConocoPhillips yet only half as profitable as Exxon (with ROIC of 4%, 8% and 16% respectively).
One can reasonably conclude that Irani's performance has been better than average, but whether or not he deserves roughly 10 times the average compensation of his peer group is debatable.
2. Oracle
- CEO: Lawrence J. Ellison
- 2009 Total Compensation: $130,230,000
- Dividends Paid to Shareholders: $250,000,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 4,064 times
From 2008 to 2009, Larry Ellison's combined compensation of $687,210,000 was greater than the market capitalization of 56% of U.S. publicly traded companies.
Ellison has a fair share of detractors, and his
"symbolic" $1 salary in 2010 (which doesn't take account for stock options and awards)
was more insulting than inspirational. Yet many do not realize that Ellison holds a 20% stake in
Oracle
(ORCL) - Get Report
-- a company that he founded.
In the eyes of opposing parties, Ellison can be considered the poster boy for American capitalism and American greed.
1. Danaher
- CEO: H. Lawrence Culp Jr.
- 2009 Total Compensation: $141,360,000
- Dividends Paid to Shareholders: $41,717,000
- Average American Salary: $32,048
- CEO/Average-Pay Multiple: 4,411 times
With a $24 billion market cap,
Danaher
(DHR) - Get Report
is probably one of the biggest companies you've never heard of -- and with a $141 million compensation package, H. Lawrence Culp Jr. is probably one of the highest-paid CEOs you've never heard of.
The Danaher Corp. is a little-known conglomerate that manufactures everything from inflatable evacuation slides to pickup truck accessories. Over the last five years, Danaher shareholders have enjoyed close to a 40% total return -- and since 1987, Danaher stock has maintained a consistent history of price appreciation.
Culp Jr.'s 2009 compensation package is near epic, but from 2008 to 2009, Danaher cash flows only suffered a recession-defying 3% drop.
-- Written by John DeFeo in New York City
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
