In this 21st century, which is an era of digital revolutionization, we are all digitally connected to one or another, and when we hear the name of ‘social media’, the name that comes to our mind at first is ‘Facebook’. It’s a known fact that Facebook is among the best paymasters in the industry where even interns are paid $74,000 per annum while business development managers earn around $115,000 per year. While all this sound quite fascinating for most of the aspiring professionals like you, we miss the fact that Mark Zuckerberg is not among the highest paid CEOs of the world, rather he is one among the lowest paid ones. Yes! that’s the fact and his salary is $1 per year which is nowhere compared to many highest paid CEOs in the world.
Bob V. Patel, CEO of LyondellBasell which is a US-based Chemical industry has an annual salary of $24,473,813, and the net revenue of the company is $4.5 billion in contrast to revenue of Facebook, which is $17.93 billion.
From the above comparison, is it correct to say that ‘The Highest paid CEOs run the worst performing companies?’. The answer is ‘definitely yes!’. The topic may be debatable as the salary of the CEO of a company is nowhere related to the growth of the enterprise, you may be surprised to learn that the lowest paid CEO’s run some of the best performing companies. And, data proves it ! Having a glance on the companies that have the lowest paid CEO’s:
Before we delve the thought, and data of course, deep, let’s have a glance on the companies that have the lowest paid CEOs and their performance:
Hewlett Packard: Meg Whitman, CEO of HP, withdraws an annual salary of $1 only and the revenue of the company is $103 billion.
Kinder Morgan: CEO of Kinder Morgan is Richard Kinder who also has the salary same as Zuckerberg and Meg Whiteman, i.e., $1 per year, makes money via stock gains and can be generous with his earnings.
Few other companies, whose CEOs are paid $1 annually are Netflix, Urban Outfitters, Oracle, American Mindstream, etc.
Numbers Are Always Magical
In a research, carried out by MSCI – a US-based provider of equity, fixed income, and portfolio analysis tools – it has been found out that for every $100, which is invested in companies who have the highest paid CEO’s have grown only to $265 over 10 years. On the other hand, it is also concluded that had the same amount been invested in companies with low paid CEO’s, the growth would have been nearly $367 over a decade.
The fact the thought, ‘The Highest paid CEO’s run the worst performing companies’ can be justified by the graph shown below which embosses the relation between cumulative returns of the companies and the compensation of the CEO’s whose salary are above or below medium.
Source: MSCI ESG Research. Returns shown are equal-weighted
Highest Paid CEOs Don’t Guarantee Growth
The profit of ‘Viacom’, an American global mass media company fell by 0.2% in the year 2014. It had also witnessed rating troubles at its biggest networks though its CEO Philippe P. Dauman is among the top 10 best-paid CEOs!
The case is no different with the CEO of IBM (International Business Machines) whose annual compensation soared by 38.5% to about $19.3 million though this posted a shareholder return of negative 12.4% and profit of the company degraded as well. The fate, however, with IBM in 2014 was that the senior management team had to skip their annual bonus after the financial results of 2013. In such a situation where other employees compromise on their bonus, the CEO gets a fair hike and being best-paid CEO’s is really a matter to think upon.
But Viacom and IBM are not the only giants where the CEO withdraws a jaw-dropping salary despite their companies’ lukewarm performance. General Electric, an American MNC conglomerate whose shareholder return was negative 6.7% is headed by Jeffrey R. Immelt whose pay rose 88% to $37.2 million.
From the above facts and figures, it can be well concluded that the salary of the CEO of a company nowhere guarantees the growth of the firm, and some of the well-paid CEOs of top enterprises are among the worst performing companies!
And, if all the above examples, data and findings do not convince you much, you should probably recall the fate of Yahoo! under the leadership of Marissa Mayer. The internet behemoth, which was once valued $128 billion once, is sold recently with an absurd valuation of $4.8 billion after 4 years of constant struggle to revive. Mayer’s base salary was $1 million in 2015 and after the acquisition of Yahoo! she is entitled to another $123 million – an insane payout to remain the most unsuccessful CEO in the history of Yahoo! Isn’t it?