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Yes, America, Some CEOs Deserve a $50 Million Paycheck

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There is a lot of bluster about overcompensated CEOs these days, and one of the hottest topics is Tim Cook's pay. We recently learned that the successor to Steve Jobs at Apple took home a cool $378 million in compensation last year.

Yeah, Apple is successful. But most folks can't help but ask the question, "Is any CEO worth that kind of cash?"

Now that proxy statements and annual filings are trickling in on Wall Street, more names have popped up on the list of $50 million-plus CEOs. There's Howard Schultz of Starbucks, who took home $68.8 million in 2011 from compensation and stock options. Disney's Robert Iger also raked in $52.8 million in total pay.

It's natural in these tough economic times to recoil from those numbers. But America must admit that sometimes, big paydays like this are warranted -- because the executives deliver results that more than pay for their compensation.

I won't dissect Apple, because the company's success is obvious. Apple just posted a staggering 118 percent jump in profits -- and for a company of that size, growth like that is simply amazing. Total sales topped $100 billion in 2011, and it is perhaps the biggest business success story of the 21st century.

Rather, I'd like to look at Starbucks because it's growth doesn't come from "insanely great" gadgets with huge profit margins. The coffee chain shows how a good CEO can do right by his company, and how that can structure a CEO's pay to ensure he gets paid what he deserves.

First, some context: Coffee giant Starbucks has made quite a comeback since 2008 when Howard Schultz returned to the corner office after an eight-year absence. The stock is up over 140 percent, while the Dow Jones actually is in the red. Fiscal 2001 profits are up four-fold since 2008, too.

So Schultz has been richly compensated as a result. In 2011, he received base compensation valued at $16 million, plus a special retention award valued at $12 million for sticking around. On top of that, Schultz got paid from stock options worth $40.8 million, according to the Starbucks annual statement filed Thursday.

But keep in mind that Starbucks the corporate "person" got paid pretty nicely in 2011, too.
Starbucks continues to find growth, whether it be through premium teas India or through Starbucks beer and wine sales in the U.S. or through its new milder roast coffee. Fiscal 2011 earnings noted revenue of $11.7 billion and operating income of $1.7 billion. That's over revenue of $10.7 billion and income of $1.4 billion in fiscal 2010. It also increased its dividend payout by 31 percent, from 13 cents a quarter to 17 cents a quarter -- a nice way of sharing the wealth with investors who own some of the 745 million outstanding shares of SBUX stock.

For those bad at math, here's the bottom line: Schultz helped Starbucks do an extra $1 billion in sales, turn $300 million in extra profits and deliver more than $400 million in dividends directly into the pockets of shareholders.

That's a long way of saying that this CEO has more than paid for himself.

Here's the kicker: The recent Starbucks proxy says a $12 million stock grant was made to Schultz in 2011 that will not vest until 2014 -- meaning he has to stick around to get paid, and focus on long-term growth to protect the company. Remember this when you read about his compensation three years from now. If he gets paid big-time because Starbucks stock has doubled from today to that vesting date, he will have earned every penny.

Intelligent people can debate whether Schultz earned his keep the right way. Yes, Starbucks offers health insurance to its baristas -- but it also laid off workers after overexpanding and raised the price of "tall" coffees. More importantly: Intelligent people must debate whether it's fair that millions in CEO stock options can be subject to a tax rate of 15 percent for long-term capital gains, while middle-class families can pay 25 percent on base wages of just $50,000 a year.

I'll be the first one to malign golden parachutes and bloated paychecks for morons who don't deserve them. Former Bank of America CEO Ken Lewis, who got a jaw-dropping $125 million severance package immediately after the financial crisis, is the most appalling example -- but certainly not the last. In 2011, oil driller Nabors Industries announced it will pay chairman Gene Isenberg a ridiculous $126 million when he steps down -- despite the fact that the company's stock flopped from almost $50 in 2008 to a mere $17 currently and is struggling to get back to its former strength.

These CEOs give all businessmen a bad name. Yet it's worth noting that there are some very good corporate executives like Howard Schultz who deserve their compensation. These folks grow their companies, share profits with stockholders and focus on long-term success that enriches both them and the companies they lead.

Here's hoping more men and women in the corner office fit this mold in 2012.

Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com.

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