WorldCity Business Magazine

Pay dirt: Overpaid CEOs

by WC

Hundreds of U.S. companies still pay their executives millions of dollars even if their companies’ performances are mediocre or even abysmal, according to a report by Glass Lewis & Co, a proxy advisory and research firm in San Francisco.

“Many boards and compensation committees simply have not gotten the message: Stop heaping huge piles of shareholders’ money on executives who haven’t generated strong returns,” the study concluded.

Glass Lewis analyzed results for 2,375 companies in the Standard & Poor’s 500 stock index or the Russell 3000 index. It looked at changes in stock price, per-share earnings, book value, total return, return on equity and return on assets.

The study singled out several companies including Caterpillar and Nordstrom where shareholders got strong leadership for bargain prices. However it found that aggregate compensation for senior executive teams in the Standard & Poor’s 500 stock index averaged a whopping $24.9 million. For Russell 3000 companies, the average was $10.8 million.

Among highlights:

Ariba paid its senior executive team nearly $20 million in estimated total compensation last year, even as the stock for the California-based company which makes software to track and analyze corporate spending fell 39 percent and its market capitalization fell $175 million. Ariba’s stock finished fiscal 2005 down 99 percent from five years earlier. It was the highest pay for non-performance among the companies studied. Morgan Stanley gave its top executives $176.2 million in total compensation in 2005, the highest of any U.S. company. At $59.3 billion, the company’s market capitalization finished fiscal 2005 at $4.4 billion, or 8 percent, higher than it was at the end of fiscal 2004. But that was 16 percent lower than at the end of fiscal 2000. Interpublic Group of Cos., a network of advertising and communications companies, paid its top executives an estimated $25.4 million even though the New York-based entity lost $289.2 million. Its stock price dropped 28 percent, while its market cap fell $1.5 billion, or 27 percent, to $4.1 billion. The pay for performance was among the most criticized among all S&P 500 companies tracked by Glass Lewis. Other examples of excess included Barry Diller’s IAC/InterActiveCorp, and Vitesse Semiconductor Corp. in California.