Jamie Dimon and Brian Nicoll Show How Underpaid CEOs Are

CEOs underpaid!? Are you sure!?

Such a view will no doubt incense those prone to thinking negatively about management at the top, but also those who might agree that certain CEOs are underpaid. About those straddling both sides, to make their case they’ll bring up chief executives of the Jeffrey Immelt (GE) variety, and who oversaw a decline in the valuation and prestige of the corporations they ran as a counter to this write-up’s declarative angle. More on individuals like Immelt in a bit.

For now, it’s useful to make a case for how underpaid CEOs are. To see why, consider a Wall Street Journal letter-to-the-editor penned by Susquehanna International Group co-founder Jeff Yass in May of this year. Yass noted observed that when J.P. Morgan CEO Jamie Dimon intimated a desire to perhaps retire sooner than expected, the shares of J.P. Morgan subsequently slid to the tune of 4.5%, or $25 billion.

The numbers are interesting simply because if wealth rankings are to be believed, Dimon’s net worth is presently $2.3 billion. If we ignore that Dimon was already rich before taking over J.P. Morgan, we can’t ignore how much investors perceive his value to the corporation he leads relative to his net worth. Figure that the mere possibility of early retirement years down the line caused always-looking-ahead investors to substantially mark down the value of the company Dimon heads. Is Dimon underpaid? Hopefully the question answers itself.

Brian Nicoll to save Starbucks?

Speaking of investors looking ahead, Starbucks recently relieved CEO of Laxman Narisimhan of his duties, only to replace him with Chipotle head Brian Nicoll. Nicoll had famously revived Chipotle’s fortunes after bad PR related to food safety leveled its stock. After the hire became news, shares of Starbucks soared. Its valuation increased $20 billion. Is Nicoll’s employment contract worth $20 billion? Hopefully this question similarly answers itself.

It’s a long or short way of making the point that markets place a higher value on CEOs than do corporate boards that draw up their compensation agreements. Call CEOs priceless.

To which skeptics will yet again bring up names like Immelt, James McNerney at 3M, Bob Chapek at Disney, and Bob Nardelli at The Home Depot (the true list is much longer) in order to pour cold water on a broad assertion about CEO pay. The skeptics miss the point.

They do because there’s no way of really knowing who will thrive and who won’t, which is why CEOs, like quarterbacks and head coaches, are hired for what could be. And in being hired for what could be, they’re still underpaid.

When Steve Jobs returned to Apple

Anyone who doubts the above need only consider the late Steve Jobs’s return to Apple in 1997. Quick question: how many reading this opinion piece bought Apple shares that day? And held them? Those who didn’t needn’t feel bad. Figure that most large institutions were similarly unsure or wildly skeptical about Apple’s future as evidenced by how it nearly went bankrupt after Jobs took over, and also as evidenced by the massive investment Bill Gates made to keep it afloat. Gates didn’t make that investment because other large institutions were lined up to back Jobs. More realistically, Apple’s surging share price after Jobs took over is loud evidence of how few (including institutional investors) foresaw what he achieved.

Importantly, what Jobs achieved reset the price for hiring all CEOs. Did Jobs capture all that value? Not even close. Neither has Dimon at J.P. Morgan, and neither will Nicoll at Starbucks assuming he lives up to his billing.

If we’re being realistic, the most powerful evidence that CEOs are vastly underpaid can be found in the failures whose pay so angers the easily instigated. In seeing what they were paid despite overseeing declining corporate valuations and fortunes, we see just how much uncaptured value the great CEOs bring.

This article was originally published by RealClearMarkets and made available via RealClearWire.