At the one end of the compensation to market cap ratio are relatively small companies that have very highly paid CEOs. At the other are chief executives at large companies who work for more modest sums and are either paid well for extraordinary financial results or have boards that believe that CEOs should not be paid like sultans
Every year, the media come out with lists of American public company CEOs who makes tens of millions of dollars. While some may have earned the money because of phenomenal results, others are paid well despite poor results. Our list of least valuable CEOs is based on chief executives who are paid handsomely, even though they run corporations with modest market caps and sales. Additionally, most of their companies have not done well, either financially or in terms of stock market performance.
Some of the companies on this list are run by founders or large shareholders. These people may well be in a position to have outsized influence over their own pay packages, which puts shareholders in an impossible position to effectively protest compensation. Other CEOs have been hired fairly recently to turn companies around. They have been paid well to take jobs in which they are expected to post great improvement, but they have not done so yet, and may never. .
24/7 Wall St. identified the least valuable CEOs based on executive pay relative to company market cap. We reviewed the market cap and CEO compensation for every S&P 500 company as of Dec. 31, 2011. If a company’s stock performance exceeded that of the S&P 500 Index between December 30th, 2011 and November 12th, 2012 it was excluded. CEOs who joined their companies or were promoted during the year in question have been included for the purpose of our measurements.
These are America’s least valuable CEOs.
10. Anthony Petrello
> Compensation to market cap: $3,208 / $1M market cap
> Compensation: $16 million
> Market Cap: $5 billion
> Company: Nabor Industries (NYSE: NBR)
Anthony Petrello was a lawyer with the firm Baker & McKenzie from 1979 to 1991. He became CEO of Nabor, a big land rig drilling contractor, in October of last year after two decades as president. Analysts have mentioned that Nabor CEO compensation has not been in line with the company’s performance for a number of years. Corporate governance officials revolted when Petrello’s predecessor, Eugene Isenberg, was offered a $100 million comp package as he left the company. The criticism was so severe that Isenberg turned down the package early this year. Petrello, who was Isenberg’s No. 2 until his promotion, may also have a tremendously large package, especially given the company’s size. But Nabor’s financial performance has been reasonably good recently. Revenue in 2011 was $6.1 billion and net income was $244 million. In the previous year, revenue was $4.1 billion, and net income was $95 million. These figures, however, have not been anywhere near expectations as evidenced by the roughly 40% drop in Nabor’s share price over the last two years. The S&P 500, during that time has increased by 12%.
9. Richard Kramer
> Compensation to market cap: $3,530 / $1M market cap
> Compensation: $12.2 billion
> Market Cap 12/31: $3.5 billion
> Company: Goodyear Tire & Rubber Co. (NYSE: GT)
Goodyear posted improved financial results in 2011. Revenue was $22.7 billion and net income was $321 million. This compares to revenue of $18.8 billion and a net loss of $216 million in 2010. Wall Street, however, wasn’t impressed and the company’s shares underperformed the S&P 500 over the last two years. Kramer became head of the huge tire company in April 2010. He had been an accountant and worked at PricewaterhouseCoopers previously. He joined Goodyear as vice president of the corporate finance division in 2000. Last year was not the only one in which Kramer might have been criticized by pay vigilantes. He made $10.1 million in 2010.
8. Gregory Cappelli
> Compensation to market cap: $3,674 / $1M market cap
> Compensation: $25.1 million
> Market Cap: $6.8 billion
> Company: Apollo Group (NASDAQ: APOL)
Education company Apollo was caught in the fallout of a government investigation into for-profit education companies which undermined its financial results recently. Most of the company’s revenue comes from its University of Phoenix operation. Apollo had 21,777 full time students as of the middle of last year. The company’s lead position in the sector helped it to grow revenue for several years, but in its most recent fiscal, revenue dropped to $4.25 billion from $4.71 billion the year before. Net income attributed to Apollo fell from $572 million to $423 million over the same period.
Apollo’s Achilles’ heel — over-reliance on government student loans — is particularly exposed. As one Morningstar analyst pointed out recently, “Regulatory concerns are high partly because of high post-graduation student debt loads. Tuition rates may be forced downward so programs can meet maximum debt/income ratios.” Investor anxiety over the effects of government regulation has pushed Apollo shares down 40% over the last two years. CEO Gregory Cappelli, however, does have a great advantage in his corner. Two board members are founder Dr. John G. Sperling, executive chairman of the board, and his son, Peter V. Sperling, vice chairman. They control the company through ownership of Class B Shares, and almost certainly have an outsized say about Cappelli’s package
7. Rory Read
> Compensation to market cap: $4,148 / $1M market cap
> Compensation: $15.6 billion
> Market Cap: $3.8 billion
> Company: AMD (NYSE: AMD)
AMD, the No. 2 semiconductor company in the world after Intel, has been near death for years. Between price and research and development pressures from its larger competitor and a sharp drop in PCs and servers sales, AMD has almost no room to improve its financial situation. Recent rumors of a sale gave the stock a temporary lift, but when the company denied them, share price cratered. Last year, revenue ticked up to $6.6 billion from $6.5 billion the year before. Net income rose to $491 million from $471 million. With the shrinking share of PCs and the rapid growth of mobile devices such as tablets and smartphones, investors’ rapidly grew concerned about AMD’s future. AMD’s share price has dropped more than 70% in the last two years. Rory Read joined AMD as CEO in August 2011. He has previously worked at Chinese PC firm Lenovo as chief operating officer. His efforts to improve the fate of the company are almost certainly hopeless, but he is paid well while he waits for AMD to fall apart at the seams.
6. Kieran Gallahue
> Compensation to market cap: $4,419 / $1M market cap
> Compensation: $25.2 million
> Market Cap: $5.7 billion
> Company: CareFusion (NYSE: CFN)
CareFusion makes and markets medical technology, including products for infection prevention, biopsies, respiratory care, and surgical supplies. It is a spin-out from huge medical supply firm Cardinal Health in August 2009. Several issues almost always turn investors against public companies. One is when they delay their SEC filings. CareFusion has yet to file its 10-K for its most recent full year results. The company says it is working on accounting charges, but has not said when the process will be complete. In the 10-K for the fiscal year that ended on June 30, 2011, CareFusion modest disappointing results. Revenue rose from $3.47 billion the year before to $3.53 billion. Net income rose from $194 million to $244 million. These results and those posted in subsequent quarters have been good enough so that CareFusion’s shares have matched the performance of the S&P 500 over the last two years. Kieran Gallahue became CEO in January 2011. With a pay package of $25.2 million, he is wildly well paid to run such a modest sized company.
5. Steven Fishman
> Compensation to market cap: $4,814 / $1M market cap
> Compensation: $11.9 million
> Market Cap: $2.5 billion
> Company: Big Lots (NYSE: BIG)
Big Lots’ is one of the largest close-out retailers based in the U.S. The company has just over 1,400 stores spread throughout America and Canada. Its stores are known for providing goods at extremely low prices, it competes in a portion of the retail market that often includes Walmart. Its shares have declined 10% over the last two years. According to the company’s most recent 10-K, revenue rose to $5.2 billion from $5 billion the year before. But net income fell from $223 million to $207 million. Steven Fishman joined Big Lots as CEO in July 2005. His board has consistently treated him generously. Over the last three years, Fishman’s pay has totaled $35 million.
4. Ian Cumming
> Compensation to market cap: $5,066 / $1M market cap
> Compensation: $28.2 million
> Market Cap: $5.6 billion
> Company: Leucadia National (NYSE: LUK)
Leucadia is often referred to as the poor man’s Berkshire Hathaway. It recently said it will buy the portion of investment bank Jefferies it does not already own. Once the transaction is completed, CEO Ian Cummings will stay, but the chief of Jefferies will take over as CEO of the combined operations. Joseph Steinberg and Cumming essentially control Leucadia. The firm’s shares declined more than 20% in the last two years compared to a 12% improvement in the S&P 500. Revenue was up slightly last year from $1.32 billion in 2010 to $1.57 billion in 2011. Much of the revenue came from the firm’s oil services, gaming entertainment operations, and from securities transactions. Because of an accounting change that involved an income tax provision, net income fell from $1.9 billion in 2010 to $25 million in 2011. The figure was also down from $550 million in 2009. Cumming has served as a director and chairman of the board since June 1978. Steinberg has been president since January 1979. Steinberg owns 10% of the firm’s shares and Cumming 9%, so it is not hard to see why compensation is so liberal. As CEO, Cumming’s pay package may be more visible but Steinberg made $28.2 million last year.
3. Dinesh Paliwal
> Compensation to market cap: $6,027 / $1M market cap
> Compensation: $16.1 million
> Market Cap: $2.7 billion
> Company: Harman International (NYSE: HAR)
Shares of Harman, the maker of audio and electronics entertainment products, have sold off 7% during the last two years. Paliwal did well last year, but he has a history of being generously rewarded by his board. Over the three years that ended in 2011 he made more than $42 million. Harman posted good results last year, although some of the growth had to do with a recent acquisition. Revenue rose to $4.36 billion in fiscal 2011 from $3.77 billion in fiscal 2010. Net income was $330 million, up from $136 million the previous year. Sales at Harman’s largest unit, infotainment, which made up 55% of total revenue, grew 15%. The division sells GPS and entertainment hardware, among other products, to car manufacturers such as BMW, Subaru, and Audi.
2. Ronald Johnson
> Compensation to market cap: $7,098 / $1M market cap
> Compensation: $53.3 million
> Market Cap: $7.5 billion
> Company: J.C. Penney (NYSE: JCP)
If there is a shortlist of CEOs at American publicly traded companies who have done an awful job, J.C. Penney’s CEO Ronald Johnson is at the top of it. His move from his role as the head of Apple’s retail operations to the “rescue” of J.C. Penney has been much discussed in the business news media. After his move, Johnson changed Penney’s discount strategy. Revenue then began to drop as much as 20% quarter over previous year’s quarter. Internet sales, critical to any retailer, have fallen even more. Shares are off by nearly 50% over the last two years. Many investors have completely given up on the company. Penney had 1,102 stores when it filed its most recent 10-K. That list of stores is being pruned as results worsen. Revenue was down 2.8% last year to $17.3 billion, but the rate of the drop has accelerated. It is a miracle that Johnson still has his job. But Penney does have a large shareholder, hedge fund Pershing Square, and if its founder William Ackman wants Johnson as CEO. It is unlikely Johnson will be leaving.
1. Michael Jeffries
> Compensation to market cap: $11,450 / $1M market cap
> Compensation: $48.1 million
> Market Cap: $4.2 billion
> Company: Abercrombie & Fitch (NYSE: ANF)
Abercrombie & Fitch posted a good quarter recently, but that was after a longer period in which the retailer suffered as its young, hip customers turned to other brands. Over the last two years, Abercrombie shares fell by 7%. The company and its sub-brands, which include Hollister and Abercrombie Kids, operate out of 1,045 locations. Abercrombie did well on the top line last year but not the bottom. Revenue reached $4.16 billion, up from $3.47 billion the year before. Net income fell from $150 million in 2010 to $128 million over the same period from 2010 to 2011. CEO Michael Jeffries has a long history with the company and is listed as a founder in the Abercrombie proxy. He has served as chairman since May 1998, and as chief executive officer since February 1992. Longevity has its advantages. Jeffries has made $107.6 million as the head of Abercrombie over the last three years.
Douglas A. McIntyre