Executive Compensation

     This may be my most controversial post to date. I'm writing about it because of a telephone conversation with my daughter about the recent Snapchat IPO and who makes money from these Initial Public Offerings. The conversation soon morphed into the high pay of top executives and specifically the CEO. As a guy who punched a timeclock his whole working career, and who always held stocks for investments, I have a unique perspective on this subject. First, I am not envious of the folks who draw huge salaries. Some actually are worth the millions they receive each year. Need some examples? How about Steve Jobs. He returned to Apple Computer after a series of CEO's tried to return the company to profitability, only he knew how to resuscitate the company he founded. Even years after his death, his vision lives on for the future of the company which has one of the largest market caps of all stocks. Jobs returned to Apple in 1997 and worked for $1 a year but by 2010 his stock compensation amounted to $1.2 billion. I can also remember the outrage over Michael Eisner's salary at Disney, however, the wealth he created for shareholders during his tenure justified his pay. History is littered with high paid executives who proved their worth by navigating their company through difficult or challenging times. There are also many CEO's who have managed to destroy wealth at an amazing rate. Unfortunately, they were also highly compensated. The good news is that the Board of Directors would usually can the slacker after giving him a reasonable amount of time. It's important to remember the huge responsibility these top exec's have to employees, shareholders, customers, and affiliated businesses. One boneheaded move could destroy thousands of jobs and billions in stock value. My point here is that the person leading the company you invest in, is just as important as the business itself. Since you can't personally know all the CEO's in your portfolio, diversification is the key to keep one jerk from spoiling your retirement. One guy who does get to know all his CEO's is Ron Baron who founded Baron Asset Fund. The annual report of this fund reads like a "Who's Who"of the business world. Although Ron has turned over management to an employee, I know Ron still has personal relationships with his top exec's. Ron's philosophy is that he invests in people first and businesses second. It has served his fund well. I am not recommending this particular fund because it may not be suitable for all investors, mainly because of high management fees, but the investment style has been a valuable lesson.