With a new story coming out everyday about poor corporate decisions, greed, outright fraud and self interest, determining value for a particular CEO is tough work.
There are many factors to consder including: scarcity of supply, the number of qualified candidates and, more importantly, how many will deliver shareholder value.
For me, the answer comes down to adding shareholder value beyond measures of share price. If the CEO does that, he deserves everything he gets no matter how exorbitant it may seem.
Case in Point
Steve Jobs at Apple (AAPL) is a great example of a CEO that adds value to shareholders that isn’t necessarily reflected in share price, especially as the market tumbles. On the flip side, let’s take a look at Meg Whitman at e-Bay (EBAY).
Last year as the economy was beginning to struggle, Whitman decided that spending time on the campaign trail was more important than running the company during what is now proving to be a transformative year.
Clearly the new CEO is not up to the task as evidenced by her performance to date. I can appreciate wanting to take time off, but this company needed Whitman to stay during these difficult times instead of blazing a trail of self-interest to the potential Governorship of California.
A good CEO needs to stay committed to the company, especially during tough times. Instead, she let the company wither under new leadership in order to pursue a political life.
In EBAY’s earnings release this week, the company stated that profits for the fourth quarter had dropped by 30%. In the period, the company made $0.29 per share. Excluding items put the profit at $0.41. Analysts were expecting $0.39 per share.
Good news right? Wrong.
This was the first quarterly profit decline in company history. Even worse, EBAY reduced guidance for the first quarter. The company now expects a profit of $0.32–$0.34 instead of the analyst estimate of $0.40.
Not only is the economy hurting EBAY, but so too is competition from Craigslist. EBAY needed Whitman to stick around instead focusing on politics. She got hers, and now shareholders are getting theirs.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
