In April of this year, Forbes ran an article on CEO pay. It singled out Sirius XM Radio (SIRI) Chief Executive Officer (CEO) Mel Karmazin as the “Worst CEO for the buck.” The process was said to be objective. It screened the country’s largest companies to find CEOs of publicly traded companies with 6 years of tenure. These executives were ranked based on stock performance relative to compensation.
Forbes said that Mr. Karmazin earned more than $37 million at Sirius since he became CEO in November 2004. Forbes expects that he will earn an additional $125 million from the planned exercise of its stock options. In fact, it has sold more than 17 million shares at the price of $1.97 to $1.98. Karmazin still has $49 million shares.
In his defense, Mr. Karmazin said that he believes he is one of the most underpaid executives in the history of executive payment. He highlighted the growth in subscriber counts. Sirius had 660,000 subscribers when he assumed the role of CEO and is now around 22 million. He also added that the operating cash flow and free cash flow has improved from the increased in revenues. From 2004 to 2011, revenues have grown from $67 million to $3.015 billion. Operating cash flow has also increased from negative 334 million to $544 million. However, the stock price has fallen from around $9 in 2004 to below $2 at current levels.
The Best Way to Measure Management is Capital Allocation
Warren Buffett said that the best way to assess management performance is how it allocates the company’s resources. It should either reinvest or payout the company’s funds to increase shareholder’s wealth. To continue reading, click here.