It pays to be a good communicator. In 2010, CEOs in charge of
communications-related S&P 500 businesses earned an average of $23.2 million in
total compensation. According to the AFL-CIO , thats 686 times the median
workers pay. At the very top of the list is Viacom s (NASDAQ: VIAB ) Philippe
Dauman, who hauled in $84.5 million in just nine months, making him the
highest-paid CEO in America. Not too far behind Dauman was News Corp. (NASDAQ:
NWS ) CEO Rupert Murdoch, who made $22.7 million in fiscal 2010. Although
Murdoch will forever be synonymous with the words phone hacking, he does run an
impressive media empire and while no person is truly deserving of such excess,
its always a good idea to understand who does a better job delivering the goods.
While theres any number of ways to evaluate the effectiveness of a CEO, most
investors would consider financial and investment returns the top two criteria
in that decision. Philippe Dauman has been Viacoms CEO since September 2006,
while Murdoch has been at the helm of News Corp. since 1979. Dauman was just 24
at the time, and as such, well focus solely on the years 2006 through 2011. With
Daumans pay packet being so large, Viacoms performance over the six year period
will have to be dramatically superior to those of News Corp. to provide any
justification to shareholders. Revenues and Cash Flow Although Viacoms year-end
changed in 2011 from Dec. 31 to Sept. 30, it shouldnt make a noticeable
difference in the comparisons. Viacoms revenues at the end of 2005 were $9.6
billion, coinciding with the spinoff of CBS (NYSE: CBS ) into its own separate
company. At the end of September 2011, those revenues had grown to $14.9 billion
an annual growth rate of 9.7%. News Corp.s went from $25.3 billion in June 2006
to $33.9 billion at the end of September, for an annual growth rate of 5.7%.
From a revenue standpoint, Viacom has performed much better. In operating cash
flow, Viacom appears to have done a far superior job than News Corp., growing
operating cash flow 10.8% annually compared to 5.2% for Murdoch & Co. Return On
Assets Since 2005, Viacoms return on assets have increased from 6.7% to 9.4%, a
40% improvement. Meanwhile, News Corp.s have remained flat around the 4.7% mark,
while its total assets grew from $56.6 billion to $62.0 billion. Over
approximately the same period, Viacoms total assets went from $19.1 million to
$22.8 billion. Viacom grew its assets by 19.4% or twice the rate of News Corp.
while also managing to improve its return on assets. In my opinion, this is
probably the most significant of the three metrics presented because it
indicates the increase in assets led to meaningful growth in revenue and
profits. There appears to be very little that News Corp. brings to the table
that suggests Murdoch has done anything to outshine the Viacom CEO. Stock
Performance In terms of financial metrics, Viacom clearly is the winner. Not
only is it performing at a much higher level, its doing so with much less
fanfare and media scrutiny. However, since Viacoms separation from CBS at the
end of 2005, its stocks average annual return is 9.6% compared to 9.9% for News
Corp. From a shareholder perspective, its a virtual tie. What Does This All
Mean? There are a couple of ways you can interpret this information. You could
come to the conclusion that financial performance is nice to have, but it doesnt
necessarily translate into superior investment returns. Despite being a clear
winner over News Corp. when it comes to financial metrics, a significant
advantage hasnt translated into greater long-term returns. Another way to look
at this is to interpret Viacoms superior investment returns in recent years as
proof investors jumped onboard as soon as it implemented a dividend for the very
first time in June 2010. Viacom has crushed News Corp. stock during the past two
years, and it could very well do the same for years to come. Bottom Line At the
end of the day, this might be the best example I can find where excessive CEO
compensation seems irrelevant to investors. As long as they make their 6% or 8%
a year over the long haul, they couldnt care less whether Philippe Dauman or
Rupert Murdoch make more in a day than many of us do in five years of work. More
From This Series Lorillard Getting More Bang Than Altria for Its CEO Buck
Occidental CEO's Outlandish Pay Has Bought Outstanding Performance As of this
writing, Will Ashworth did not hold a position in any of the aforementioned
stocks.
No comments:
Post a Comment