How Much is Your CEO Worth?

By Kyle Metivier - August 28, 2012 | Tickers: CHK, COP, PSX | 0 Comments

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“Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality.America,  America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.” – Gordon Gekko, Wall Street

The 2012 “Executive Excess” report is out. Let’s corral all these greedy CEOs along with their cow-towing Boards of Directors and clean this whole mess up. In all seriousness, I kid because I care. After reading the annual report from the Institute for Policy Studies, there are a number of discussion points. It definitely makes you think. And unlike a lot of these studies that tend to have an ideological or political slant, it actually presents several solutions to the problems, rather than just cursing darkness.

Now as somewhat of a grownup I realize there are certain people who will refer to the organization that produced this report as “liberal.” But unlike some liberals who are angry because they actually despise the smell of patchouli and don’t get a weekly paycheck to just hang out, this group spent considerable time and effort, so simply casting it off as a left-wing assault on corporate America is careless. Conversely, many conservatives are angry because they have to work within so many restricted rules and they cannot fathom why anyone could possibly disagree with their points on any given topic. Their rhetoric quickly becomes noise, rather than a discussion of the situation and obvious problems with ways to arrive on an ultimate solution.

Reports such as these tend to focus more on finger pointing since it is quite simple to sling out numbers and parade names attached to faces where we can target our well-placed arrows. It’s much easier to do that than argue with a seriously flawed tax code. But a few of the myriad castigations of one CEO in particular raised an attentive eyebrow and although the report is a robust fifty pages, it merely scratches the surface of corporate and Chief Executive Officer “abuse.”

Singled out atop the list of executives who “saved” the most from the Bush tax cuts is ConocoPhillips (NYSE: COP) CEO James Mulva. As we cast searching, scathing eyes upon Appendix 3, Mulva recorded taxable compensation well over $145 million, with tax savings totaling almost $7 million, courtesy of a former president and a reticent Congress. What the report doesn’t present for us is the fact that Mulva’s career began with Phillips after he left the United States Navy in 1973. Nor does it mention that he was CFO from 1990 to 1993, at which time he became a Senior Vice President. The report doesn’t include any sort of history with regards to Mulva’s position as Executive Vice President the following year, or that he was named President and CEO in May of 1994, later Chairman and CEO in 1999, awarded Petroleum Executive of the Year in 2002, upon which time he ascended to the spot of President and CEO of ConocoPhillips.

I read a rather large number of these reports that throw out numbers like baseball statistics, completely disregarding any ounce of history. James Mulva not only had an illustrious career with this organization, the report fails to mention well over $20 million the Mulva family has donated to institutions of higher learning (St. Norbert College), as well as to the ROTC, which Mulva credits as the very reason he was able to attend and afford college. James Mulva served his country, his company and its shareholders well, and if he chooses to exercise stock options that he has acquired during his lengthy tenure with ConocoPhillips, that is undeniably his right. His decision to retire after the transition of the spin-off of the refinery arm of the business, Phillips 66 (NYSE: PSX), is complete happens to come at a time when the Swiss cheese tax code benefits any number of CEOs of publicly traded companies. And if you, fair reader, had actually paid attention and done a little bit of homework, you would enjoy the returns these two companies have afforded investors since my first mention, when the New Year was upon us.

The report surreptitiously cites examples of suggested misconduct, including one of my personal favorites, Aubrey McClendon, CEO of Chesapeake Energy (NYSE: CHK), even though he didn’t purchase an island with the fruits of his labor. But the report states as a mere aside, the tool that we shareholders possess and must use each and every time it is placed in our hands. Unlike the vast population of apathetic registered voters that complain about current and past administrations they had no say in electing, shareholders can whine regardless of whether they vote or not. But we would be wise to vote before each annual meeting, because the “say-in-pay” hammer is a beautiful instrument we are slowly starting to acquire in our toolboxes. One which I used recently with great force, although not physically felt, I was a proud participant of the overwhelming 80% of shareholders that votes “NO” to McClendon’s compensation package.

While reports like these surface from time to time, don’t completely dismiss them as some group’s political rant. They are definitely worthy of consideration, and offer some points of reflection. But they shouldn’t be the only reason to buy, sell or hold a stock.

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