First Runner-Up: George Barrett, Cardinal Health
George Barrett became CEO of Cardinal Health (NYSE:CAH) on Sept. 1, 2009, after the spinoff of CareFusion (NYSE:CFN), its medical equipment business. Prior to becoming CEO, he was in charge of the company’s Healthcare Supply Chain Services segment, and had been with the company for 20 months before his promotion.
Barrett’s 2012 total direct compensation was $11.1 million. For that outlay, shareholders received a total return of 3.8%, or about one-quarter the performance of the S&P 500. Even worse, its former stable mate, CareFusion, managed a total return of 12.5% — 930 basis points higher than its former parent.
Since the spinoff, CareFusion has achieved a total return of 86.6% — 420 basis points higher than Cardinal Health. It’s not unusual for the spinoff company to outperform the parent; there’s plenty of empirical evidence suggesting this phenomenon has existed for a very long time. What makes Cardinal Health and CareFusion so frustrating is that, despite both companies underperforming the index in 2012, they combined to dole out $21 million in CEO compensation.
In 2011, CareFusion paid incoming CEO Kieran Gallahue more than $25 million in total direct compensation, most of which was stock and option awards used to recruit Gallahue away from ResMed (NYSE:RMD). Since Gallahue’s hiring, its stock has been able to keep ahead of the index, but only barely. Both companies — and especially Cardinal Health — are guilty of paying for non-performance.
If you’re wondering why I ranked Cardinal Health ahead of Air Products when APD’s performance has been even worse, it’s because Cardinal Health pays out $2 million more to its CEO, which in my mind makes it a worse offender.