Entrepreneurs and analysts declined to answer my question (on the record) earlier this week as to why Google's CEO Eric Schmidt or other execs for the Mountain View, Calif., tech company did not make the Wall Street Journal list of the decade's 25 top-earning CEOs. So, I took the question to Kevin J. Murphy, the Kenneth L. Trefftzs Chair in Finance at the University of Southern California (USC), Marshall School of Business.
Murphy compiled the analysis for the Wall Street Journal. For the list, he drew the information from Execucomp, a Standard & Poor's service that reviews the proxy statements companies file annually with the Securities and Exchange Commission. Among other factors, the WSJ and Murphy measured realized compensation, which means how much an executive actually made during the decade.
The "Top 25" doesn't include gains from shares held in an executive's portfolio, unless those shares were awarded through compensation plans. So, Murphy says Google's Schmidt, and co-founders Sergey Brin and Larry Page have stock holdings worth about $35 billion, based on $500/share price, but their compensation has been negligible. "Interestingly, one of Google's executives, Omid Kordestani, almost made the top 25 list based on his 2005 and 2007 option exercises, $288 million and $33 million, respectively," he says.
Murphy explains Google's case is similar to many other executives with large shareholdings, who routinely receive relatively small compensation, such as Warren Buffet and Bill Gates.
Most of the large payouts at the tech firms came from exercising options in the late 1990s or early 2000s. Murphy says if the retrospective had been from 1995 through 2001, for example, the sample would have been largely populated with the tech execs.
When I asked Murphy if higher CEO compensation directly reflects the company's success, alignment with shareholders, and strength in the company's position, he called it somewhat of a mixed bag, since there are different stories for each executive.
In general, "getting on the list" reflects a combination of large equity awards in the form of stock or options, and high stock-price appreciation. Based on high stock-price appreciation, most of the companies were successful and well-aligned with shareholders at least leading up to the gains that put the executive on the list. The gains were not always sustainable.
John Chambers at Cisco, for example, got on the list based on the dramatic increase in Cisco stock prices before March 2000. Murphy says on average, the companies with execs in the Top 25 would have made for "good" investments. So, I'm wondering if that also mean they make good decisions for the companies they run.
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