ebook essays pieces of the puzzle
Tuesday, April 5th, 2011
time to vote

It’s proxy season.  So, it’s time to see who made what in the CEO compensation derby.

Above please find information (all via the Bloomberg terminal) about three companies and the compensation of their CEOs since the end of 2005.  The stocks have similar market capitalizations and are in the same industry.  The charts show:  the cumulative total return for the stocks in the top panel, the earnings in the middle (presented on a trailing twelve-month basis, in millions), and the yearly compensation of the CEOs in the bottom panel, also in millions.

For the entire five-year period, the totals look like this:

A)  Earnings:  $2.8 billion.  CEO compensation:  $31 million, including $500 thousand in “other.”

B)  Earnings:  $3.2 billion.  CEO compensation:  $91 million, including $3.5 million in “other.”

C)  Earnings:  $4.9 billion.  CEO compensation:  $43 million, including $450 thousand in “other.”

The “other” compensation is not on the chart, but represents those club memberships, drivers, private trips on the jet, etc., for which the companies pay.  I did not look at whether any of the firms use the truly gross practice of “grossing up,” nor did I look at alternative measures of option calculations or the like.  I just took the numbers as I found them.

So, company A has had a more stable earnings pattern, but its total earnings have been less than the others and have not completely recovered.  It trades at the highest multiple of the three and its stock has done the best — and its CEO is paid the least, by a significant margin.

B’s earnings have rebounded strongly, but it appears to take quite a bit more risk than A.  B’s CEO has been paid three times as much as A’s over the period, was compensated handsomely even during 2008, and apparently likes to get extra goodies.

C has had the highest earnings over the period, but they were front-end-loaded.  Its stock has lagged the others.

If you had to choose one stock to own based upon this limited information, which would it be?  Why?