Dumb and dumber: High-priced headhunter hires

Promoting company insiders to the top spot seems to be in the best interest of shareholders.

By InvestorPlace Jun 28, 2012 3:41PM

Image: Office worker (© Design Pics/Corbis)By Jeff Reeves


With the news that J.C. Penney (JCP) has ousted its president after just eight months, you can't help but question the turnaround plan at this big box retailer.


And on a broader level, you can't help but question the logic of hiring high-priced executives with flashy turnaround plans that never seem to pan out.


Michael Francis announced his resignation on Monday, and despite only having been there since September, he's walking away with $10 million in compensation. I don’t know if that's more or less outrageous than the fact that if he had he stayed, he could have made as much as $45 million.


Of course, that's chicken feed for JCP CEO Ron Johnson, a former Apple (AAPL) superstar who was paid about $53 million in 2011 simply for taking the reins at J.C. Penney -- and before anyone knew if he could turn the store around.


Given J.C. Penney's ugly May earnings and the reemergence of the chain's old model of coupons and sales, it looks as though Johnson could be in over his head.


Why do corporations throw money away on high-priced "talent" in the corner office that always seems to blow up? When is the last time a big stock played headhunter and saw it pay off?


Carol Bartz at Yahoo (YHOO)? Yeah, that ended well.


The revolving door at Hewlett-Packard (HPQ), which I like to call the worst-run corporation in America?


There are exceptions, of course. Talking with colleagues this week, we came up with two examples of outside leadership orchestrating a successful turnaround: Lou Gerstner, the former American Express (AXP) exec who helped save IBM (IBM) from certain doom by "making an elephant dance" in the 1990s, stands out. Also worth noting more recently is former Boeing (BA) exec Alan Mulally heading up the restructuring at Ford (F).


But the successes are few and far between.


By and large, sticking with company insiders instead of throwing big money at questionable talent seems to be in the best interest of shareholders.


Just take a look at these top-performing Dow stocks (based on individual share performance, versus the broader index) and the very long tenures of their CEOs.


#1 Dow CEO: John Chambers, Cisco Systems

Ticker: CSCO
Stock since appointment: +839%
Dow since appointment: +229%
Year joined company: 1991


#2 Dow CEO: James Skinner, McDonald's

Ticker: MCD
Stock since appointment: +267%
Dow since appointment:  +21%
Year joined company: 1971


#3 Dow CEO: Louis Chenevert, United Technologies

Ticker: UTX
Stock since appointment: +147%
Dow since appointment: 0%
Year joined company: 1993 (via Pratt & Whitney)


#4 Dow CEO: Bob Iger, Walt Disney

Ticker: DIS
Stock since appointment: +113%
Dow since appointment: +19%
Year joined company: 1974 (via ABC)


#5 Dow CEO: Jay Fishman, Travelers

Ticker: TRV

Stock since appointment: +88%
Dow since appointment: +22%
Year joined company: 1991


For more info on CEO performance, check out InvestorPlace's Leaderboard to see which execs are doing a standout job and which are lagging the broader market.


Or, if you just want to grit your teeth at the excess of executive largess, view the biggest CEO paydays of 2011 instead.


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1Comment
Jun 29, 2012 10:36AM
avatar
It's not all bad at JC Penney. We are hearing some good remarks about the new pricing system. I think it is catching on with more people.
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