The media doesn't shy from exposing executive compensation, especially the big pay packages. It's pretty terrible, in my view, when you see an investment decline while concurrently seeing the boss make more money.
Something about being rewarded for failure just doesn't seem to match up with our morals as a society and economy. As parents, we teach our kids that reward comes from behaving well, not disobedience or misbehavior.
But enough about overpaid CEOs. There are numerous companies with executive compensation that is fair and rewards performance. Being a CEO is not easy, so I have no problem with substantial pay packages for leaders who deliver. However, I want to note those companies who have CEOs that are being paid next to nothing.
Let's start with watch maker Fossil (FOSL) and its CEO Kosta Kartsotis, who takes no salary. Several years back, Whole Foods (WFM) co-CEO John Mackey reduced his salary to $1 and has left it there ever since.
David Linger, CEO of real estate brokerage firm Re/Max (RMAX), took no salary in 2015. Larry Page of Action Alerts PLUS portfolio name Alphabet (GOOGL) also takes the symbolic salary of $1. Urban Outfitters (URBN) CEO Richard Hayne pays himself more though -- to the tune of $44,000 per year.
To be sure, a low paid CEO is not a guarantee of excellent investment results. Fossil shares are down by over 60% in the past year. Whole Foods shares have been disappointing over the past several years. No rational investment approach would suggest investing solely in a business because the CEO is working for free.
However, most CEOs have enough money so that they don't need to work. So if you have a person that is still willing to put in the time, it makes sense to look closer at a company. And quite often, such CEOs own a meaningful amount of stock. Fossil's CEO Kartsotis owns nearly 13% of the Fossil's shares, so he's also feeling the pain of the 60% decline in the value of his shares.
One CEO has been paid $100,000 a year for the past 50 years and has taken no bonus and no stock options ever. Over those 50 years, the shares have appreciated by approximately 20% per annum, arguably the most value-creating investment over the past half century. The company of course is Berkshire Hathaway (BRK.A; BRK.B) and the CEO is Warren Buffett.
Executive compensation can be a strong signal to run away from a company or look just a little closer. Either way, the effort can be well worth it when you find a CEO working on the cheap.
