CEO Salaries, Net Income, and Dividends Compared

Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The following executive salaries were among the highest paid from companies on the S&P 500 Index, according to an analysis by S&P CapitalIQ of the companies’ most recent proxy statements. Are top executives paid comparably when judged by the company's net income? Is there a relationship between CEO salaries and dividends? What about CEO salaries and gross sales? Does a higher executive salary equal better net income and margins?

(Source: Washington Post "CEOs making big bucks")

A side-by-side comparison of salaries to net income shows us that not all of the top paid CEOs are paid equally.


<img src="/media/images/user_920/ceo-salaries-3_1_large.JPG" />

The higher the net income of a company does not appear to have any continous pattern for CEO salaries. For instance, Apple COO Tim Cook (he was COO as of the last proxy statement) is compensated at $57.8 million, while the company raked in a net income of almost $26 billion. But also getting paid in that same ballpark is CBS (NYSE: CBS) top dog Leslie Moonves at $57.7 million, while the company only made $1.3 billion in 2011.

If CEOs were getting paid in direct correlation to the company's net income, the payscale would be greatly altered. It would be the top executives at IBM, Exxon Mobil, and Apple joining Oracle's Lawrence Ellison at the top end of the payscale, instead of Viacom's Phillipe Dauman - the highest paid on the list.

Are some executives overcompensated considering the net worth of the company? The value of a CEO is determined by the board, the company itself, and to some extent the shareholders. It can be rather eye-opening to see that the CEO of Johnson & Johnson (NYSE: JNJ) William C. Weldon, who helms a company with a net income of $9.67 billion, and has been with the company since 1971, is earning the same as Thomas Ryan of CVS Caremark (NYSE: CVS), which brought in $3.46 billion. But then, where would Ralph Lauren (NYSE: RL) be without its namesake? Ralph Lauren the man is one of the more disproportionately paid CEOs in the top twenty with salary of $30 million, and net income of $567 million.

Another look at the companies reveals that all dividends are not created equally either. This comparison of net income to dividend size, shows us that profit-size does not equal better paying dividends. 

<img src="/media/images/user_920/net-vs-div_large.JPG" />

In this view it is interesting to see how much larger the AT&T (NYSE: T) and Stanley Black & Decker dividends are compared to other companies. Stanley Black & Decker pays a 2.2% dividend, as does Comcast. Occidental Petroleum pays 2.1%.

Does a larger CEO salary compared against gross revenue mean a higher or lesser dividend?

<img src="/media/images/user_920/ceo-div-gross_large.JPG" />

From this point of view it raises the question whether or not some CEO salaries are eating away at both the company's dividend and its profitability. In this chart we see that the higher the salary, the lower the net income, and in some cases, lower dividends. Investors may want to take a second look at Viacom, Oracle, Occidental, Freeport-McMoRan, Discovery, Ralph Lauren, and others, and ask whether or not the CEO salary is reducing the company's profitability. It is interesting to note how much AT&T sticks out as the highest grossing company, with one of the lower paid CEO salaries, and higher dividends.

A look at gross sales, CEO salary, dividends, and net income together-

<img src="/media/images/user_920/gross-div-ceo-net_1_large.JPG" />


From these different points of view we learn that the more profitable a company does not mean a higher paid CEO, or a higher paying dividend. Numbers do not dictate salaries. It is the companies that determine the value and worth of its CEO.



<table> <tbody> <tr> <td>Company</td> <td>Gross Rev (billions)</td> <td>Dividends</td> <td>CEO Salary (millions)</td> <td>2011 Net Income (billions)</td> </tr> <tr> <td>AT&T (NYSE: T) Randall Stephenson</td> <td>126</td> <td>5.7</td> <td>27.3</td> <td>3.94</td> </tr> <tr> <td>McKesson Corp (NYSE: MCK), John Hammergren</td> <td>112</td> <td>1</td> <td>46.1</td> <td>1.20</td> </tr> <tr> <td>Apple (NASDAQ: AAPL), Tim Cook</td> <td>108</td> <td>0</td> <td>57.8</td> <td>26.00</td> </tr> <tr> <td>IBM (NYSE: IBM), Samuel J. Palmisano</td> <td>107</td> <td>1.5</td> <td>21.7</td> <td>15.85</td> </tr> <tr> <td>CVS Caremark (NYSE: CVS), Thomas M. Ryan</td> <td>107</td> <td>1.5</td> <td>29</td> <td>3.46</td> </tr> <tr> <td>Johnson and Johnson (NYSE: JNJ), William C Weldon</td> <td>65</td> <td>3.5</td> <td>29</td> <td>9.67</td> </tr> <tr> <td>Comcast (NASDAQ: CMCSA), Brian L. Roberts</td> <td>56</td> <td>2.2</td> <td>31</td> <td>4.16</td> </tr> <tr> <td>Walt Disney (NYSE: DIS), Robert A. Iger</td> <td>41</td> <td>1.4</td> <td>29.6</td> <td>4.86</td> </tr> <tr> <td>Oracle (NASDAQ: ORCL), Lawrence Ellison</td> <td>35.6</td> <td>0.8</td> <td>77.6</td> <td>8.55</td> </tr> <tr> <td>DirecTV (NASDAQ: DTV), Michael D. White</td> <td>27</td> <td>0</td> <td>32.9</td> <td>2.60</td> </tr> <tr> <td>Occidental Petroleum (NYSE: OXY), Ray Irani</td> <td>24</td> <td>2.1</td> <td>76.1</td> <td>6.77</td> </tr> <tr> <td>Freeport-McMoRan Copper & Gold (NYSE: FCX), Richard C. Adkerson</td> <td>21</td> <td>2.5</td> <td>39.5</td> <td>4.56</td> </tr> <tr> <td>Viacom (NASDAQ: VIA), Phillipe Dauman</td> <td>15</td> <td>1.9</td> <td>84.5</td> <td>2.10</td> </tr> <tr> <td>CBS (NYSE: CBS), Leslie Moonves</td> <td>14.2</td> <td>1.4</td> <td>57.7</td> <td>1.31</td> </tr> <tr> <td>Stanley Black & Decker (NYSE: SWK), John F. Lundgren</td> <td>10.4</td> <td>2.2</td> <td>32.7</td> <td>0.67</td> </tr> <tr> <td>SanDisk (NYSE: SNDK), Eli Harari</td> <td>5.6</td> <td>0</td> <td>29.5</td> <td>0.99</td> </tr> <tr> <td>Ralph Lauren (NYSE: RL), Ralph Lauren</td> <td>5.6</td> <td>0.5</td> <td>29.7</td> <td>0.57</td> </tr> <tr> <td>Discovery Communications (NASDAQ: DISCA), David Zaslav</td> <td>4.2</td> <td>0</td> <td>42.6</td> <td>1.13</td> </tr> </tbody> </table>


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