Over the last few weeks Intel (NASDAQ:INTC), Papa John’s (NASDAQ:PZZA) and Texas Instruments (NYSE:TXN) have all gotten rid of their high-priced CEOs, but their stocks have barely budged.
It has been quite messy. Brian Krzanich of Intel and Brian Crutcher of Texas Instruments were both let go for violating their employers’ codes of conduct. Krzanich had an affair with an employee. We still don’t know what Crutcher did.
The headlines have all gone to Papa John’s founder John Schnatter, who allegedly used racist language on a conference call, but now says he was blackmailed into stepping down.
There’s a soap opera feel to the story. Schnatter founded Papa John’s and was also featured on the company’s commercials, so I get why his firing draws headlines, but the question needs to be asked.
What’s a CEO worth?
CEO Salaries Keep Rising
CEO salaries have long been a focus of criticism. The average pay for an S&P 500 CEO is almost $14 million.
Crutcher was getting $3.14 million and had 6.5 million stock options in 2017, while the stock’s price was rising from $70-per-share to $100. Krzanich made $21.5 million his last year in charge, $6.5 million in salary and the rest in stock. Schnatter was said to be making $2.8 million when he was let go.
Incoming Goldman Sachs (NYSE:GS) CEO David Solomon is due to make only $2 million, but his bonus last year came to $21 million.
What are these people doing for this money? A successful strategy, and proper execution, can be worth a fortune to a company, but when companies fail to perform, as Intel has relative to other tech companies, you never see a pay cut.
Top athletes like LeBron James and Cristiano Ronaldo can make over $30 million per year, but you don’t pay $100 for a Brian Krzanich jersey, or $150-per-ticket to watch him sweat. What you expect, as a stockholder, is that he’ll make money for you.
But when CEOs fail, their pay somehow doesn’t get cut. Celgene (NASDAQ:CELG) CEO Mark Alles made $13 million last year, while the stock lost 15% of its value. The stock is still falling, and he’s still raking it in. If he were replaced, the replacement would likely make even more, compensation for the coming turnaround.
Bright Lights, High Pay
CEO pay performance measures vary tremendously by industry. Salaries in the media industry are much higher than those in technology, although technology CEOs can make that up with stock options and grants.
Making media companies into subsidiaries doesn’t seem to slow the gravy train. Steve Burke of NBCUniversal made $46.5 million last year while reporting to Comcast (NASDAQ:CMCSA) CEO Brian Roberts, whose salary is listed at $18 million.
Time Warner CEO Jeff Bewkes made almost $50 million last year, while AT&T (NYSE:T) CEO Randall Stephenson made just $9 million. Maybe that’s why Bewkes was replaced once AT&T’s acquisition went through with John Stankey, who is making $3.15 million.
The Bottom Line on CEOs
For the largest companies, CEO salaries are a rounding error. Boards of directors insist that “the market” drives CEO salaries, and that they have to pay for “quality.”
But bad managers cost just as much as good managers. Newell Brands (NYSE:NWL) paid its CEO $5 million last year, while the stock’s value was being cut in half, costing shareholders $13 billion.
A good company is not as good as its CEO. Often, it’s better. That seems clear in the case of Texas Instruments and Intel, which are still worth just as much as they were when their CEOs were jettisoned. No one complains about CEO salaries, while the market is rising, only when it’s falling.
Maybe that’s what needs to change.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
