by Alyssa Oursler | July 30, 2013 10:56 am
It’s easy and common for folks to decry the huge pay of chief executives, especially as the gap between their giant paychecks and those of everyday workers just keeps on growing.
Heck, John Hammergren of McKesson Corp. (MCK) was the star of last year’s Forbes list of top-paid CEOs and brought home a total of $131.2 million. That’s more money than I can even fathom.
But in his defense, at least his company made money.
Indeed, the bulk of that compensation package was thanks to stock gains, as MCK climbed more than 30% over the course of the year. Meanwhile, JCPenney‘s (JCP) Ron Johnson made 1,795-times the average wage and benefits of his store’s workers when he was hired … and then proceeded to drive the stock right into the ground.
Similarly, Bloomberg shows that numerous big-name head honchos took home millions in 2012, all while their businesses were bleeding cash. Here are five CEOs who sailed to paychecks of more than $10 million last year, when their companies didn’t even post a profit.
Company: U.S. Steel
Compensation (all data for 2012): $11.1 million
Company Net Income: -$124 million
Stock Return: -9.1%
Last year was an ugly year for steel stocks across the board thanks to global economic slowdown and other headwinds. Thus, in a relative sense U.S. Steel (X) really didn’t fare all that poorly. The stock dropped around 9% for the year, while names like Cliffs Natural Resources (CLF) and AKSteel (AKS) plummeted 38% and 44% respectively.
Still, a 9% slide on a $124 million loss for 2012 hardly seems to justify CEO John Surma’s hefty $11.1 million compensation — especially as the company moves to have fewer workers and lower pay, all while looking for other ways to cut costs.
Sure seems like that whopping pay package could be an easy thing to trim down.
Oh, and so far in 2013, things aren’t getting better. X is off more than 20%, while the company reported an ugly $78 million second-quarter loss just yesterday, following a worse-than-expected loss in Q1.
Compensation: $14.4 million
Company Net Income: -$43 million
Stock Return: -62.7%
At first glance, it almost seems like we should cut ServiceSource International (SREV) some slack. The service revenue management company has only been public since April of 2011 — making it a relatively new kid on the block — while, last year, it did report record revenue that represented growth of 19% year-over-year.
But the bottom line is that … well … the bottom line matters. And unfortunately, that was anything but pretty. ServiceSource ended the year $43 million in the red — a loss of 58 cents per share compared with a profit the year before.
That translated to a stock slide of 63%. Meanwhile, Smerklo took home over $14 million.
The good news: Smerklo and ServiceSource have been back on track this year. The stock is up an eye-popping 85% year-to-date. Still, that rocketing climb has essentially put the stock back at ground zero. It went public at $10 per share and, after a rollercoaster ride, is trading for $10.83.
Compensation: $15.4 million
Company Net Income: -$12.65 billion
Stock Return: -46.7%
Based on ServiceSource and this next company, Hewlett-Packard (HPQ), an unprofitable company with an absurdly high paid CEO might just be a great leading indicator.
Hewlett-Packard — which brought CEO Meg Whitman on board in 2011, making her its fourth CEO in six years — also suffered big-time last year, posting a loss of more than $12 billion and shedding have its stock value.
So far in 2013, though, Hewlett-Packard has also rocketed back, posting a gain of 80% since the first of the year. Still, that’s done little more than regain the losses from last year’s shitshow.
The one thing that Meg Whitman — who took home $15.4 million in the face of HP’s 2012 epic slide — has in her corner is the argument of scale, though. Even if you eliminated her compensation altogether, the company’s brutal $12 billion bleeding wouldn’t have been affected in the least.
Company: Chesapeake Energy
Compensation: $16.9 million
Company Net Income: -$769 million
Stock Return: -24.1%
Aubrey McClendon is probably the most notable highly paid chief executive on this list — partially because of his seemingly inevitable downfall.
McClendon served as CEO of Chesapeake Energy (CHK) — the natural gas giant he co-founded — for two decades, and his lavish pay and perks was a common source of controversy between the chief and his shareholders. Last year, for example, he took home nearly $17 million, while the company lost 45 times that.
This story ends a little differently, though, because McClendon actually got the boot, more or less. He finally “stepped down” earlier this year following investigations about whether or not the CEO blurred the line between his personal finances and those of the company.
Of course, McClendon’s reign at Chesapeake came to an end, but the outsized pay didn’t. The former head honcho took home a golden parachute of $47 million.
Company: Devon Energy
Compensation: $18.8 million
Company Net Income: -$206 million
Stock Return: -14.9%
The case of our highest paid head honcho at a money-losing company is a prime example of one word: perspective. In 2012, Devon Energy (DVN) CEO John Richels took home nearly $19 million in his second full-year on the job, all while the company lost around 10 times that — a total of $206 million in the red, or 52 cents per share.
Then again, when you consider that Devon posted a net loss of $4.7 billion back in 2011 — yes, an eye-popping $11.25 per share — the 2012 performance really doesn’t seem all that bad. Either way, though, one thing is clear: DVN is struggling big-time in the face of falling natural gas prices.
Unlike other entries on this list, Devon hasn’t posted an eye-popping comeback in 2013 either. Year-to-date, the stock’s up a shrugworthy 5%, leaving its share price around 40% from 2011 highs.
Hopefully, the company’s latest plan to spin off some of its pipeline and storage facilities will indeed unlock value for shareholders … and maybe make Richels’ pay seem worthwhile.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/07/5-top-paid-ceos-at-unprofitable-companies/
Short URL: http://invstplc.com/1nw5MoG
Copyright ©2016 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.