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Tickers in this Article: UA, GE, AMZN, BRK-A, FAST, ALTR
Deep-value stocks are those companies in which shares are trading close to or below net tangible book value - for example, Under Armour (NYSE:UA), the athletic apparel and footwear manufacturer, which is a great growth business. Although most people are more familiar with Nike (NYSE:NKE) runners, many are choosing to switching to the not-so-upstart's new line of jogging shoes. Kevin Plank, Under Armour's founder and CEO, almost works for free - and it was his idea to do so. How many other CEO's would do the same? (Learn how to find out a CEO's compensation through the proxy statement in our article, Executive Compensation: How Much Is Too Much?) No Easy Solution
On average, CEOs make 344 times the average American's salary. Thirty years ago, the disparity was just 30 times the average. Executive compensation has certainly changed, and not for the better. Jack Welch, the extremely well-paid former CEO of General Electric (NYSE:GE) defends CEO pay on his official web site. "Now, is this free-market system of pay perfect? Absolutely not, which is why under performing CEOs sometimes end up getting huge sums of money just to go home," he wrote. "While such situations enrage many, they can be hard to avoid, given market dynamics." It sounds to me like Mr. Welch thinks this subject is just too darn confusing for most of us, and better left alone.

CEO Pay Down
According to Forbes magazine, the leaders of America's 500 largest companies saw their total pay drop by 11% in 2008 to a collective $5.7 billion. That puts them in a tie with Swaziland for the world's 147th biggest economy. While it's true that paying peanuts gets you monkeys, it's interesting to understand how pay-for-performance delivers three things: a growing and sustainably profitable business, increasing shareholder returns, and a motivated happy workforce. Forbes annual CEO compensation list has what it calls an "efficiency rating" that takes into account a company's six-year total return in relation to its CEO's total compensation. While Kevin Plank and Under Armour didn't make the list (it's not one of the top 500 companies), a few CEOs were able to deliver for shareholders, despite lower-than-average compensation. Just as a mutual fund with low management expenses doesn't mean poor performance, neither does lower pay. In fact, the opposite may be true.

The Five Top Performing Companies

Company
5-Year CEO Pay
Efficiency Rank
Amazon (Nasdaq:AMZN)
$6.01 million
2
Fastenal (Nasdaq:FAST)
$6.11 million
11
Berkshire Hathaway (NYSE:BRK.A)
$500,000
18
Altera (Nasdaq:ALTR)
$9.52 million
30
New York Community Banc (NYSE:NYB)
$9.51 million
37
The Bottom Line
CEO compensation became a mess the minute the federal government put a $1 million ceiling on non-performance related salaries. Companies could pay more than the salary ceiling but only deduct the million. This opened the floodgates for long-term performance stock and cash awards, sending total pay spiraling out of control. Since the horse is now out of the barn, there's no guarantee it can be put back in. However, examples like those five above suggest it is possible to compensate an executive fairly without being excessive. Kevin Plank would agree. Oracle's Larry Ellison and his $944 million pay package, not so much. (Read Declare War On CEO Pay for more.)

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