The New York Times published its 2014 CEO compensation report and continued its steady drumbeat against the whackadoodle nature of executive compensation at America’s publicly traded companies. In a world where S&P CEOs earned 373 times the salary of the average worker, according to The Wall Street Journal — up from 42 times in 1980 — it seems that whackadoodle is the appropriate operative term. Of course, in a tech industry where most people tuck themselves in bed at night dreaming of stock options that will finance Ferraris, private islands, or at least college tuition for the kids at tweedy private universities, not everyone may be concerned about the inequality ramifications of a giant CEO salary. So be it.
However, in an industry where pay for performance is a pretty core concept, it’s probably worth taking a deeper dive into who makes what at which companies. We’ve pulled out the key Enterprise Software and HCM executives from the NYT report, and we’ve added four other executives from publicly traded HCM companies using SEC filings, annual reports, and data publicly available from salary.com. Unless otherwise indicated, all information comes from The New York Times list.
Though this list is interesting, how these salaries stacked up to company performance is what’s most relevant. For the table below, revenues were calculated from public filings for the most recent fiscal year. Stock-return data was calculated using buyupside.com’s stock-return calculator.
Time for the disclaimer: We at The Starr Conspiracy aren’t compensation consultants. We know there are tons of variables that go into executive compensation. For example, from The New York Times report: “Satya Nadella, who was named chief of Microsoft in February of last year, was awarded compensation worth $84.3 million in 2014. But most of that is a one-time equity grant that will be distributed over seven years.” I would be very interested to see what Ann Bares at Compensation Café would make of all this data.
All that said, fairness is a fundamental concept in compensation. Is it fair that a CEO should make hundreds of times an average worker’s salary? I’m not sure that’s the right question. Is it fair for an executive such as Nadella at Microsoft to make $84.3 million while guiding an $86 billion dollar company to 12 percent higher revenue and a 24 percent higher stock return? Maybe. But at least 27 percent of Microsoft shareholders don’t think so according to the Times — they voted against Nadella’s compensation for the year.
However, one take on CEO compensation is examining whether these leaders are adding value or extracting value — a question posed recently by Forbes contributor Steve Denning.
By this measure, Ellison, Nadella, and Weiner are definitely being compensated fairly. Is Marc Benioff worth his salary? If he manages to get someone to buy Salesforce for $50-plus billion, it would be hard to say no.
IMHO, Scott Scherr at Ultimate Software may be the best CEO right now in HCM. Even though some investors may be disappointed with year-over-year growth that is closer to 20 percent than 30 percent, he’s led Ultimate into profitability, which we at The Starr Conspiracy think will be an increasingly important measure of success in SaaS for investors. He’s also accomplished growth and the transition to profitability without compromising their outstanding company culture.
Minus the profitability part, much of the same could be said for Aneel Bhusri at Workday. The year-over-year revenue growth is pretty stunning, and they’ve also built a great culture. However, I don’t see them reaching profitability as long as they are battling for market share. Also, I think profitability is almost inevitable for Workday in the long term. And at $8.3 million, he seems like a bargain.
Among some of the big-name players on the list — IBM, SAP, and Cisco — compensation seems in line with company value. Multimillion-dollar stock grants give the CEOs some skin in the game. However, based on revenue growth and stock return, it’s hard not to feel like compensation is out of line. Should there ever be some downside risk for a CEO? It seems the question isn’t between a big payday and a small (or nonexistent) one. It’s seems the question is between an exorbitant payday and merely a big one.
Perhaps the biggest question mark on the list is Adam Miller at Cornerstone OnDemand. The path to profitability doesn’t seem to be there for CSOD, as loss per share continues to mount. However, probably the best way to measure Miller is the same way to measure Benioff — it’s not so much where the company is today as where it’s going. As long as Cornerstone continues to be mentioned as an acquisition target, a lucrative exit seems likely at some point. That’s the kind of thing where a CEO adds value that doesn’t necessarily show up in the box score.
We know this list leaves out a lot of CEOs at publicly traded HCM companies — ADP, Aon Hewitt, Kronos, Monster, etc. We’ll have an update soon with a Part 2.