12/8/2010 7:44 PM ET|
The decade's 10 best-paid CEOs
Over 10 years, the top-paid chief execs collected a total of $7.64 billion. But the mixed results for their companies suggest some earned it and some did not.
The growing gap between what CEOs and the rest of us earn makes great fodder for debate, so here's a number to chat about: $7.64 billion. That's what the top 10 best-paid CEOs of the millennium -- OK, the millennium so far -- have earned as a group.
For most, that didn't come in the weekly paycheck. "The key for most of these was gobs of stock options," says Paul Hodgson of GovernanceMetrics International, a global corporate governance research firm.
Many also got generous grants of restricted stock and pricey perks, like use of the company jet for personal trips.
Do they deserve this largesse? You be the judge. In some cases, stock prices soared, which demonstrates the professed purpose of options and restricted stock -- motivating the boss.
"All of these companies dramatically outperformed at some point, or they wouldn't have gotten on the list," says Kevin Murphy of the University of Southern California's Marshall School of Business, who originally compiled this list for The Wall Street Journal.
In other cases, though, stock prices have fallen -- and in the most extreme, the company collapsed on the CEO's watch.
Murphy based his study on pay numbers for 2000-2009; 2010 tallies won't be available until companies report in the New Year. He included salary, gains on options at the time they were exercised, the value of restricted stock at the time it was vested and the value of other forms of pay, including perks. His 10 best-paid CEOs follow.
10. William McGuire, UnitedHealth: $469.3 million
From the start of 2000 through November 2006, UnitedHealth (UNH, news) CEO William McGuire made $420.1 million on stock options. Throw in salary, bonus pay and other compensation, and McGuire's total take during his tenure was $469.3 million, putting him in the No. 10 slot for CEO pay in the last decade.
Shareholders did well, too. UnitedHealth's stock performance during the same period turned $10,000 into $70,708.
But this story has an odd twist.
Despite all the wealth McGuire pocketed legitimately, he got caught up in the options-backdating scandal, in which grant dates were selected retroactively to attain better pricing on options.
"Clearly half a billion dollars wasn't enough," says Hodgson. McGuire ultimately paid back more than $600 million to UnitedHealth, a settlement that covered money earned on options prior to the last decade -- he started as CEO in 1991. In settling the matter, McGuire neither admitted or denied guilt.
9. Henry Silverman, Cendant: $481.2 million
As CEO of Cendant, a travel and real-estate services company, Henry Silverman last decade got a lot more than the normal options, bonus and salary, which often came under attack from pay critics for being four times the industry average. But a big part of his $481.2 million take came in the form of lavish perks, including retirement plan and life insurance payments, a corporate jet and a company car and driver. The value of these perks totaled $89 million from the start of 2000 through August 2006, when Silverman split up the company. Shareholders did not do as well though: An investment of $10,000 over the same period would have dwindled to $5,119.
8. Terry Semel, Yahoo: $489.6 million
Terry Semel joined Yahoo (YHOO, news) in early May 2001 to lead repair efforts at the website and search-engine company after the tech bubble burst. He did a good job and was rewarded handsomely, earning virtually all of his $489.6 million on generous options grants designed to motivate him. Many of those options were priced above the value of Yahoo stock at the time they were granted, an unusual practice, says Hodgson. Premium-priced options are designed to motivate execs even more, at a lower cost to shareholders -- who did quite well under Semel, anyway. Anyone who invested $10,000 in Yahoo when he joined the company had $27,800 by the time he left in June 2007, according to calculations by The Wall Street Journal. In contrast, the Nasdaq gained 19% in the same period.
7. Eugene Isenberg, Nabors Industries: $518 million
Eugene Isenberg managed a phenomenal turnaround of the energy-services company Nabors Industries (NBR, news) after taking over as CEO after a 1987 reorganization. He turned a $35 million market cap into $6.7 billion, and the company has created over 23,000 jobs since he took over, says Nabors.
The company awarded Isenberg more than $100 million in bonus pay for his efforts last decade, plus enough stock options and restricted stock to net him more than a half-billion dollars in all, landing him in the seventh position on the list of best-paid CEOs past decade.
6. Angelo Mozilo, Countrywide: $528.6 million
Pay experts cite former Countrywide CEO Angelo Mozilo as a poster child for the kind of problems that can occur when execs get lavish options grants. Huge grants can tempt execs to take on too much risk and do things that are bad for shareholders and the country alike. Mozilo stoked the subprime mortgage machine to boost Countrywide earnings and stock -- and cashed out more than $400 million worth of options as a result. But then the debt instruments built on dubious home mortgages originated by Countrywide blew up, and the company tanked. Banks including Lehman and Merrill were in on this action, too. But Mozilo cashed out so much in options while the bubble was inflating that, among big-bank chiefs involved in the mortgage meltdown, only he made the top 10 list of highest-paid CEOs in the past decade.
5. Richard Fairbank, Capital One: $568.5 million
What's in your wallet? If you're Capital One Financial (COF, news) CEO Richard Fairbank, lots of buying power. The boss of this credit card company realized a cool quarter of a billion dollars by exercising option grants in 2005 after his company's stock had risen eightfold over 10 years under his leadership. Since then, shareholders haven't done so well; the stock price has been cut in half. But Fairbank received so many options earlier in his tenure that he's continued to ring the register, putting himself fifth on the list of highest-paid CEOs of the past decade. "If boards award enough stock options, then the stock doesn't have to do much for a CEO to make a lot of money," says Hodgson. Shareholders lost about 15% during the last decade, though anyone who has owned since the mid-1990s when Fairbank came on board has done very well.
4. Steve Jobs, Apple: $748.8 million
Apple (AAPL, news) CEO Steve Jobs famously gets a salary of only $1 a year. But that hasn't kept him from being one of the best-paid CEOs of the decade. A large grant of restricted stock in 2003 and a string of huge consumer electronic hits that drove Apple stock through the roof was all it took. Critics scoffed as Apple canceled his options in 2003, when they were then worthless, and replaced them with the restricted stock that's added so much to his wealth. But in a twist, had he kept those options, he'd be wealthier still. Should we cry for Steve? There's a reason there's no app for that. He still got a lot of loot -- and a Gulfstream V jet the company gave him in 2000 for business and personal use.
3. Ray Irani, Occidental Petroleum: $857 million
Occidental Petroleum (OXY, news) chairman and CEO Ray Irani was the third-highest-paid CEO in the past decade, thanks to huge dollops of options and restricted stock that paid off handsomely as this energy company's stock advanced sharply. Shareholders have done well, too, earning more than 850% during the same period. Nevertheless, many of them think Irani is overpaid. Shareholders opposed Irani's pay package last year in a nonbinding vote that signals Occidental's board they want change -- perhaps because Irani gets three times as much as other oil company executives.
A company spokesman responded that Irani's pay reflects "outstanding leadership" which has brought "excellent performance and exceptional returns for shareholders."
2. Barry Diller, IAC: $1.14 billion
Media mogul Barry Diller's move to IAC/InterActiveCorp (IACI, news) from QVC shopping network 16 years ago was a shrewd one financially. In just the past decade, he's earned a cool $1.14 billion managing the company, which runs several popular websites, including Match.com. Most of his earnings came from stock options -- many of which were priced below the prevailing stock price at the time of the grant, an unusual practice, says Hodgson.
Despite all the money he makes at IAC/InterActiveCorp, shareholders also pay for his personal use of the corporate jet. This set them back nearly $1 million last year. Shareholders have lost in other ways during the Diller decade. Although the stock has recently looked attractive thanks to all the cash IAC/InterActiveCorp has to buy back shares, an investor who put $1,000 into the stock at the beginning of the decade would have just $779 to show for it now.
1. Lawrence Ellison: $1.84 billion
Thanks to massive stock options grants issued every year, Oracle (ORCL, news) CEO and chairman Lawrence Ellison easily tops the list of highest paid CEOs for the past decade. Virtually all of the $1.84 billion he's earned in the past 10 years came from options. But this is actually only a small portion of the vast wealth Ellison has obtained from the database software company he founded. He owns almost 1.2 billion Oracle shares, or about 23% of the stock, a position recently worth $34.6 billion. Shareholders haven't been left out. Anyone who put $1,000 into the stock in the late 1980s right after Oracle went public is now up $143,000. So it's hard to begrudge Ellison for all this wealth -- plus, he's pledged to give most of it to charity.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
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