The annual ritual of analyzing CEO compensation started in earnest this month when the Wall Street Journal released its preliminary findings from its study of 300 large companies. The initial report highlights the first 50 companies, and the full report will be released in May, but the takeaway is the same as always: Some CEOs are delivering value to shareholders, while others are taking it away.
Today, I’ll provide investors with my opinion of the three best CEOs from the group of 50. In a second article to follow, I’ll provide my three biggest offenders.
To be eligible for today’s winner’s list, a CEO’s stock must have outperformed the S&P 500 in 2012 and his or her total direct compensation for 2012 must be in the bottom half of the 50 companies.
So, without further adieu, here are three CEOs that are earnings their keep:
Second Runner-Up: Tim Cook, Apple
Although Apple‘s (NASDAQ:AAPL) stock has hit the skids in 2013, down 13% year-to-date, CEO Tim Cook did a nice job in 2012 delivering a total return of nearly 33%.
More to the point, Cook’s total direct compensation of $4.16 million in 2012 means the CEO generated a 1% total return for every $127,000 in total direct compensation. That might seem like a lot until you consider that former SuperValu (NYSE:SVU) CEO Craig Herkert (fired July 30, 2012) was paid $116,154 for every percentage point of the 67.4% drop in SVU’s value.
Meanwhile, Cook’s 2012 compensation was 99% lower than in 2011, when he received $378 million — most of which came in the form of restricted stock units that will vest in 2016 and 2021. While ridiculed at the time, Cook’s compensation package virtually guarantees he’ll be at the helm for almost a decade to receive his generous payday. From a continuity perspective, it makes a lot of sense.
First Runner-Up: Charles Szews, Oshkosh
Oshkosh (NYSE:OSK) CEO Charles Szews was paid a total of $2.34 million in 2012. Meanwhile, OSK stock gained almost 35% last year and currently sits within 7% of its five-year high of $44.57.
Oshkosh shareholders paid just $60,600 for each 1% of performance in 2012. That’s especially gratifying knowing management faced the wrath of Carl Icahn for most of last year, with the activist investor finally giving up on Dec. 4.
Since then, Oshkosh’s stock is up 43% on news that the company’s financials are vastly improved. In late January, OSK raised its full-year earnings (September 2013 year-end) guidance from $2.35-$2.60 per share to $2.80-$3.05.
Winner: John Mackey and Walter Robb, Whole Foods
This choice wasn’t difficult.
Whole Foods (NASDAQ:WFM) paid its two co-CEOs $1.2 million in total direct pay in 2012. With the exception of one dollar, all of it went to Walter Robb (right), who has been with the company since 1991. Founder John Mackey has received $1 in annual salary since Jan. 1, 2007, foregoing all bonuses and stock options.
As a matter of principle, none of WFM’s employees can receive cash compensation more than 19 times the average hourly wage of full-time workers. In 2012, the average was $18.63 for an annual wage of $38.747, putting the salary cap at $736,200. Due to Whole Foods’ exceptional performance in 2012, its six named executive officers besides Mackey forfeited an average of $717,000 in cash compensation as a result of its salary cap.
It’s very rare to hear about executives willingly foregoing any compensation, let alone three-quarters of a million dollars.
That’s not to say its executives aren’t compensated well. All six of the named executive officers received option awards in 2012, ranging from a low of $465,412 to a high of $955,803. But even here, the company does a good job spreading the wealth. According to Whole Foods’ proxy: “Approximately 96% of the options granted under our Stock Incentive Plan have been granted to team members who are neither an executive officer nor a director.” No wonder WFM has been selected by Fortune magazine in 15 consecutive years as one of the “100 Best Companies to Work For.”
Although Whole Foods’ stock has had some ups and downs in recent times, long-term it has easily outperformed its grocery store and S&P 500 peers. Evidently, you don’t have to pay people obscene amounts of money to get them to work hard. You just have to treat them with respect.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.