Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

This public program was initiated in collaboration with The Conference Board Task Force on Corporate/Investor Engagement and with Thomson Reuters support of communication technologies. The Forum is providing continuing reports of the issues that concern this program's participants, as summarized  in the January 5, 2015 Forum Report of Conclusions.

"Fair Access" Home Page

"Fair Access" Program Reference


Related Projects 2012-2019

For graphed analyses of company and related industry returns, see

Returns on Corporate Capital

See also analyses of

Shareholder Support Rankings


Forum distribution:

Relating executive pay to competitive production of goods and services


For the research referenced in the article below, see


Source: The New York Times | Fair Game, June 17, 2016 column


Business Day

How to Gauge a C.E.O.’s Value? Hint: It’s Not the Share Price

Fair Game



Everybody knows that chief executives receive bounteous pay as a matter of course. In 2015, for example, the median pay for a top corporate executive at 200 large American companies was $19.3 million.

Less discernible, though, is who actually earned their pay the most by increasing the value of the companies they run by a commensurate amount. Such performers are not to be confused with executives who work to propel their company’s stock price. This pursuit can have fleeting benefits and disastrous consequences, as Valeant International, the beleaguered drug company, has shown.

One reason it’s so hard for shareholders to determine a chief executive’s value is that companies’ descriptions of their pay packages are complex. For example, the discussion of General Electric’s compensation practices took up more than 20 pages of its 65-page proxy this year.

Any investor who plows through these pay documents will recognize a common corporate theme: The amounts awarded to the chief executive are aligned with shareholders’ interests because the pay is grounded in the company’s performance.


Fair Game

A column from Gretchen Morgenson examining the world of finance and its impact on investors, workers and families

Fantasy Math Is Helping Companies Spin Losses Into Profits

Apr 22

BlackRock Wields Its Big Stick Like a Wet Noodle on C.E.O. Pay

APR 15

In Yahoo, Another Example of the Buyback Mirage

Mar 25

Stock Buyback Plans, Seen as Shareholder Boon, Can Backfire

MAR 11

FASB Proposes to Curb What Companies Must Disclose

Jan 2


Valeant Shows the Perils of Fantasy Numbers

OCT 30


Safety Suffers as Stock Options Propel Executive Pay Packages

SEP 13

Why Putting a Number to C.E.O. Pay Might Bring Change

Aug 9

Tech Companies Fly High on Fantasy Accounting

Jun 21

Stock Buybacks That Hurt Shareholders

Jun 5

Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay

May 16

When the Stock Price Hides Trouble

Oct 12


An Unstoppable Climb in C.E.O. Pay

Jun 30 2013

See More »


But companies use a bewildering array of benchmarks in their compensation decisions. These gauges often vary, even within the same industry, making apples-to-apples comparisons difficult and hampering an investor’s ability to determine when an executive is overpaid.

“It is amazing how complicated companies make the proxy and how studiously they avoid the simple informative presentation of relative pay for relative performance,” said Stephen F. O’Byrne, president of Shareholder Value Advisors, a firm specializing in compensation design and performance measurement.

The most common performance metrics used by companies can be problematic. Total shareholder return, according to a recent study by Equilar, a compensation analysis firm in Redwood City, Calif., is the single most popular measure related to pay at big public companies.

Companies love total shareholder return in part because it is easy to calculate. But a company’s stock can rocket even when its operations are being run into the ground. So basing pay on total shareholder return can encourage an executive to manage more for a company’s share price than for its overall health.

“When you look at total shareholder return relative to pay, you’re not looking at the underlying returns of the business,” said Mark Van Clieaf, managing director at MVC Associates International, a consulting firm. “That can take investors down the wrong path.”

A better way to measure whether a C.E.O. has created value at a company is to look at its return on capital over a period of years. This reveals how effectively a company is using its own money to generate profit in its operations.

When you compare these returns to an executive’s compensation, you see where pay is justified and where it isn’t.

I asked Mr. O’Byrne and Mr. Van Clieaf to analyze returns on capital among the top 200 companies whose compensation was reported by The New York Times three weeks ago. The goal was to see how the executive pay at each company stacks up against its corporate performance and highlight which companies are giving away the store to their chief executives and which are getting their money’s worth.

Mr. O’Byrne and Mr. Van Clieaf began by examining each company’s return on capital over the last five years and then comparing it with companies in the same industry. This resulted in a relative return on capital for each corporation.

The experts then compared each company’s C.E.O. pay last year with that of its peers. This produced a relative pay figure that could be set against its relative return on capital over five years. The calculations were adjusted for company size.

Among the top 200 companies, the study concluded that 74 overpaid their chief executives in 2015 based on five years of underperformance in return on capital. The total overpayment last year to the C.E.O.s at these companies, the study found, was $835 million.

Industries with the greatest outsize pay were energy, technology, media, health care and consumer products, the study said.

Companies high on the overpayment list included, a software company; Vertex Pharmaceuticals; and the Vector Group, a tobacco concern.

All three companies had a return on capital below that of their peers over the last five years, the analysis showed. Nevertheless, the pay received by these company’s chief executives was lush.

For example, at, return on capital fell 23 percent over the last five years. As a result, Marc Benioff, its chief executive, received almost $31 million more last year than was warranted by the company’s performance against its peers.

Jeffrey M. Leiden of Vertex Pharmaceuticals received $27 million in excess pay based on the company’s negative 35 percent return on capital over the period. And Howard M. Lorber, the head of the Vector Group, was overpaid by $35 million last year when judged on the company’s 4.5 percent decline in return on capital during the previous five years.

Representatives for all of the companies challenged the idea that return on capital was the best way to measure their operations.

Chi Hea Cho, a spokeswoman for, said that because its business model was based on recurring revenue, return on invested capital was not the right way to measure performance. “We have created a thoughtful executive compensation structure based on total shareholder return, which aligns executives’ interests directly with those of our stockholders, and over the last five years, Salesforce has delivered returns of 111 percent, more than double the S.&P. 500 index.”

Paul Caminiti, a spokesman for the Vector Group, said in a statement: “From 2010 to 2015, Vector’s common stock produced total annualized returns of 21.6 percent, as compared to 12.6 percent for the Standard & Poor’s 500 over the same five-year period.”

A Vertex spokeswoman, Heather Nichols, said in a statement that successful earlier-stage biotech companies were measured largely on research productivity and shareholder returns. “Over the last five years,” she said, “Vertex has delivered three breakthrough medicines to people with serious diseases and a 259 percent total shareholder return.”

The analysis also identified more than 70 companies whose chief executives were delivering outsize returns on capital for fair or even undersize pay.

This group included MasterCard, overseen by Ajaypal Banga, which had a 40 percent premium compared with its peers, and the TJX Companies, the retailer run by Carol Meyrowitz, with a 36 percent excess return on capital.

Philip Morris International, a tobacco company headed by André Calantzopoulos, generated excess return on capital of almost 30 percent compared with its peers.

Gary Lutin, a former investment banker, said it was crucial for investors to assess whether their companies were generating more wealth for management than for shareholders. As overseer of the Shareholder Forum, an independent creator of programs to provide information investors need to make astute decisions, he has convened a workshop to focus investor attention on basic measures of corporate performance that generate long-term shareholder wealth.

“Both investors and corporate directors need to measure performance based on the profits a company generates from its competitively successful production of goods and services,” Mr. Lutin said. “That’s the only real foundation there is for investment value, and for national prosperity.”


A version of this article appears in print on June 19, 2016, on page BU1 of the New York edition with the headline: Gauging the Value of a C.E.O.


© 2016 The New York Times Company

Performance and Shareholder Support

The following graphs of corporate performance and of shareholder voting support for executive compensation are presented in the order of the article's reference to the company, and are linked to the relevant text.

Full-size graphs of these and other companies you may select can be generated on the Shareholder Forum's websites for Returns on Corporate Capital™  and for Shareholder Support Rankings™. Definitions of both analyses are presented below.






♦ ♦ ♦

Returns on Corporate Capital™ are a performance measurement developed in a Shareholder Forum workshop project, and are calculated from the company’s SEC reports of its GAAP-defined net income plus interest expense and income taxes, divided by its prior year’s ending balance of total assets less current liabilities other than interest-bearing debt. Comparative averages for the company's industry are based on aggregate amounts for all reporting Russell 3000 companies in the six-digit Global Industry Classification Standard (GICS), excluding the amounts for the subject company.

Shareholder Support Rankings™ analyses are produced by The Shareholder Forum from research data provided by Equilar, Inc., calculated as the percentage of total votes cast for, against and abstaining in advisory “Say on Pay” shareholder approvals of executive compensation.

© Copyright 2012-2016 The Shareholder Forum, Inc.




This Forum program was open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the purpose of this public Forum's program was to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant was expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated in 2012 in collaboration with The Conference Board and with Thomson Reuters support of communication technologies to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices. The website is being maintained to provide continuing reports of the issues addressed in the program, as summarized in the January 5, 2015 Forum Report of Conclusions.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.