Valuing a CEO

10th March 2020

There are many who seem to be forever bemoaning the value of CE remuneration. A question for them is whether, based on the following measure, they add the value some highly paid CEs do:

Some, even many, CEOs are overpaid. It is especially galling to see CEOs that lead companies badly still getting paid huge amounts of money.

But some CEOs are very very good. They add value to a company well in excess of their salary. Some people claim once a company is big, then it doesn't matter who the CEO is. But this is clearly not true - look at Steve Jobs with Apple.

Another is Bob Iger at Disney. He become CEO in 2005. The Disney share price since then has gone from $23.80 to $150. It has employed an additional 70,000 people also.

Iger's salary is a staggering $66 million a year. That is around 0.1% of the company's turnover.

But the best way to see how valuable the market sees a CEO is the change in share price when they leave. Iger's resignation saw it drop 2.5%. The net worth is $220 billion so that is $5.5 billion Iger was valued at.

So paying $66 million a year for someone whose value to the company is $5.5 billion seems a pretty good deal.

Hat tip David Farrar, Kiwiblog.

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