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2012: Year of the $50 Million CEO?

With big compensation comes a big responsibility to stock owners


Dow LeaderboardThe Walt Disney Co. (NYSE:DIS) is one of the biggest names in  entertainment, and one of the biggest stocks on Wall Street. Disney has a $70 billion market value, boasts more than $40 billion in annual revenue and has been a component of the Dow Jones industrial average since 1991.

Walt Disney also has one of the highest-paid CEOs on Wall Street.

Disney CEO Robert Iger recently was highlighted in a USA TODAY article about corporate executives making tremendous salaries. Disney’s Iger was of particular note because his compensation crested the $50 million mark — via $31.4 million in “pay and perks” and $21.4 million from stock.

Granted, Disney has fared well under CEO Robert Iger, outperforming competitors and helping DIS stock beat the market since he took the helm in 2005. (Get a complete rundown of how all 30 Dow components have performed under their respective CEOs on our Dow Leaderboard interactive feature)

Of course, Iger isn’t alone. Other big paydays for top CEOs include these numbers from 2011:

  • Apple (NASDAQ:AAPL) CEO Tim Cook raked in $378 million across 2011, though admittedly $376 million came from stock. You can argue AAPL is successful and can afford it, but the new Apple CEO also has a tall order replacing the late Steve Jobs. Shareholders better watch to make sure Tim Cook is worth the compensation.
  • Qualcomm (NASDAQ:QCOM) CEO Paul Jacobs enjoyed $50.6 million in 2011 compensation, with$28.9 million from stock options. QCOM stock has almost doubled off its 2010 lows.
  • Tyco International (NYSE:TYC) CEO Ed Breen took home $68.9 million in 2011, including $52.4 million from stock and options. Shares are back to 2008 levels, and have steadily marched upward since bottoming out in 2009.
  • J.C. Penney (NYSE:JCP) CEO Ron Johnson, the fresh face charged with turning around the retailer, enjoyed $51.5 million in quick compensation for his brief tenure at the company. The pay included $50 million in restricted shares after signing on in November. J.C. Penney obviously is making a costly bet that the Apple retail strategy will turn around the company, but we’ll see if the big compensation to lure Johnson away from AAPL results in gains for JCP.

If you think those paychecks are too rich, even for stocks that have outperformed, I have bad news. Exit packages frequently turn out to be even more lucrative. A CEO can get paid an extravagant amount simply by virtue of heading toward the exit.

  • Nabors Industries (NYSE:NBR) will pay chairman Gene Isenberg $126 million when he steps down. Unfortunately, the oil drilling stock flopped from almost $50 in 2008 to a mere $17 currently.
  • Motorola Mobility (NYSE:MMI) CEO Sanjay Jha is due more than $60 million after the merger with Google (NASDAQ:GOOG) is finalized. That’s certainly not a black eye – but it’s worth noting that Motorola stock hadn’t exactly thrived since a spinoff into MMI and enterprise-focused Motorola Solutions (NYSE:MSI) in 2011.
  • Temple-Inland (NYSE:TIN) CEO Doyle Simons also is set to get more than $60 million after a merger is finalized between his packaging company and International Paper (NYSE:IP).

Much has been written about the disparity between CEO pay and the average worker compensation in America. Just by comparing your own family budget with these figures, I’m sure you see a mammoth disparity. But there’s no point in getting on a soapbox about that, since the trend is well documented.

Rather, what investors should be concerned about is whether these lavish compensation packages are in the best interest of shareholders. Will Apple’s Tim Cook or Penney’s Ron Johnson prove up to the task? Only time will tell. And if they manage to deliver big value to stock holders, so be it.

But if JCP and AAPL underperform, investors should make themselves heard. There’s nothing wrong with being fairly compensated — but pay packages like this clearly show high expectations.

Here’s hoping the CEOs live up to their responsibilities.

Jeff Reeves is the editor of Write him at editor@investorplace??.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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