by Adi Ignatius
A few years ago I sat down with Starbucks founder Howard Schultz in his Seattle office to discuss the challenges of being a CEO. At one stage I asked whether he felt there was a disconnect between the person he would like to be and the persona he needs to project while running a public company. Serving as a CEO, he said, “has been difficult—and lonely.” Yet he’d found that it was indeed possible to be values-driven while also winning Wall Street’s respect. “But the only ingredient that works in this environment is performance—so we have to perform.”
Schultz has delivered on both fronts. He has become increasingly progressive, speaking out on topics ranging from presidential politics to gay marriage. And though that might make some shareholders cringe (and others applaud), he has resoundingly—and consistently—come through for investors. As a result, Schultz has earned a spot (#54) on our list of the 100 best-performing CEOs in the world. It’s a varied ranking, whose honorees represent 22 nationalities and countless personal values and styles. Another Seattle-based CEO, Amazon founder Jeff Bezos, comes out as #1.
How do you measure a CEO’s worth? We decided to approach the task scientifically, basing the ranking on hard data, not on reputation or anecdote. Specifically, we looked at the increase in total shareholder return and market capitalization.
We also focused on long-term—or at least longish-term—results. Our rankings consider the performance of active CEOs over their entire stints, and we’ve included only those who have been in their jobs for at least two years. (The median term for all the CEOs we studied is seven years.)
The top CEOs have undeniably been effective. The top 50, on average, have delivered total shareholder returns of 1,350% (adjusted for exchange-rate movements) during their time on the job. That translates into an annual return of 26.2%. Adjusting for industry effects, average total shareholder returns for the top 50 are 1,161%, and for country effects, 1,087%.
The majority of CEOs on our list have headed up companies for more than seven years.
We acknowledge, of course, that being a good CEO is about far more than just investment performance. Leading a company and creating value depend on many skills that are hard to measure—strategic vision, authenticity, long-term planning. And investors certainly aren’t the only stakeholders that need tending to; the best-run companies connect effectively with customers, employees, and the communities where they operate.
But we want this ranking to be as objective as possible, so we’ve put a premium on what we can measure precisely. Someday, we hope that there will be equally concrete ways to account for “intangibles”—environmental impact, employee satisfaction, customer engagement—so that we can confidently add that data to the formula. Until then we can only supplement this list with parallel data that tries to track some of these “softer” attributes.
Along those lines, we asked the Reputation Institute, a reputation management consultancy, to rank our top 100 CEOs in terms of these other skills—work environment, citizenship, governance, leadership, and so on. The results suggest, I’m afraid, that doing well doesn’t correlate much at this stage with doing good. That said, a few superstars scored high across the board, including Bezos, who, despite Amazon’s well-publicized entanglements with publishers and authors, was #4 on the Reputation Institute list. (Schultz finished in the middle of the pack.)
What else do we know about the CEOs on this list? Most are men—only two women, Debra Cafaro of Ventas and Carol Meyrowitz of TJX, made the top 100—and the median age is 59. (This is similar to what we see in the entire group studied, in which 3% of CEOs were female and the median age was 58.)
A dramatic disparity among the top 100 CEOs
Thirteen CEOs are of nationalities that differ from their companies’. (Though it’s still not a global market for CEOs, that figure is more than double what it was in the 2013 version of this ranking.)
And while the top 100 have each experienced their own unique journeys to success, there do seem to be two preferred pathways. Over a quarter of the CEOs have MBAs, and nearly as many had studied engineering.
We also looked at CEO pay, to see how that related to performance. To do so, we worked with Equilar, a company that collects information on compensation, to tally the most recent pay packages for the top 100. These elite CEOs are very well paid, as are most CEOs. But on average the executives on our list receive more of every form of compensation than their peers do.
Disney’s Bob Iger, #60 on our list, is the highest paid among our 100, with a total package of $34.3 million. That doesn’t make him the world’s best-paid CEO. In fact, according to Equilar, 13 CEOs earned more, led by Charif Souki of U.S. gas developer Cheniere Energy, whose 2013 compensation totaled $141.9 million.
More than half of the best-performing CEOs run firms with U.S.-based operational headquarters.
So what’s the ultimate takeaway from this ranking? In many ways, Bezos’s place atop the list says it all. Here’s a CEO who has frequently underperformed in the short term while continuing to make big bets on the future. Amazon often reports quarterly losses, even as sales continue to rise. And though the company is subject, like many firms, to dramatic share-price swings, Amazon and Bezos have a long-term track record of delivering shareholder value that is second to none.
Twenty-four of HBR’s 100 best-performing CEOs have undergraduate or graduate degrees in engineering, compared with 29 who have MBAs. (Eight CEOs have both degrees.) At technology or science-based companies, it’s not a big surprise to find an engineer at the helm. But engineers thrive at the top of other kinds of firms, too: Examples include Carlos Alves de Brito of brewing giant Anheuser-Busch InBev, Jeffrey Sprecher of the financial services firm Intercontinental Exchange, and Kari Stadigh of the insurance company Sampo.
What makes an engineering degree useful to people leading a business? “Studying engineering gives someone a practical, pragmatic orientation,” says Nitin Nohria, the dean of Harvard Business School, who holds an undergraduate degree in chemical engineering from the Indian Institute of Technology, Bombay. “Engineering is about what works, and it breeds in you an ethos of building things that work—whether it’s a machine or a structure or an organization. Engineering also teaches you to try to do things efficiently and eloquently, with reliable outcomes, and with a margin of safety. It makes you think about costs versus performance. These are principles that can be deeply important when you think about organizations.”
Executive recruiter James Citrin, after examining the list’s numbers, notes an interesting trend: CEOs who were hired into firms as outsiders were more likely to have an engineering degree than insiders who were promoted into the job. “That connects with my experience,” says Citrin, who leads Spencer Stuart’s North American CEO practice. “When boards are making decisions, and they know it’s riskier going outside, it often gives them comfort if a candidate has studied engineering.” Why? Citrin says engineers excel at “architectural thinking” and logical problem solving. The only downside of an engineering background, Citrin says: It might be a small strike against a candidate who wants to lead a company in a creative field such as fashion or advertising.
One of the downsides of a global CEO ranking is that it’s difficult to offer a comprehensive comparison of these leaders’ pay, because countries require different levels of transparency with executive compensation. With help from the compensation analysis firm Equilar, we compiled pay data on 68 of our top 100 CEOs. (The remaining 32 are based in countries that lack public data on executive pay.)
No surprise: American CEOs earn more. The median pay for U.S. CEOs on HBR’s list is $12.1 million, compared with $6.4 million for non-U.S. CEOs for whom we obtained data. All 10 of the highest earners lead U.S. companies. “That’s consistent with what we’ve seen for years: that U.S. CEOs make more,” says Aaron Boyd, Equilar’s director of governance research. The pay calculations incorporated each executive’s salary, cash bonus, equity awards, option awards, and “other,” and the biggest difference between U.S. and non-U.S. pay packages was the size of equity and option grants—components that are particularly valuable when global markets are rising. Those components are also especially lucrative to CEOs who generate above-average total shareholder returns.
High-performing CEOs earn more than the average. Last year the median compensation for S&P 500 CEOs reached $10.1 million, breaking into eight digits for the first time. That’s 20% below the amount earned by the U.S. CEOs on our list. Equilar’s analysis shows that, on average, they outearned other CEOs in every category—including salary, bonus, equity awards, and options. And since our top 100 CEOs produce superior shareholder returns in the long term, their equity and options will obviously appreciate with their stock. In addition, the top 100 tend to stay in their jobs longer than most CEOs, increasing their lifetime earnings.
Family and founders sometimes “earn” less. It may seem ironic that Jeff Bezos, the #1 CEO in performance, comes in second-to-last in compensation, earning a 2013 salary of $81,000 and total compensation of $1.7 million (most of which consists of company-provided security). While Bezos’s annual comp is far below the CEO average, Amazon’s founder holds an 18% stake in the company, which means that for every $1 increase in Amazon’s share price, Bezos’s net worth rises by $84 million. It also makes him the world’s 20th richest person, by some calculations.
While HBR’s global CEO ranking takes a critical step forward by gauging CEOs on long-term, rather than short-term, gains, it nevertheless looks at performance in purely financial terms. Yet a company’s greatness also depends on nonfinancial factors—like social responsibility and integrity. Though these are harder to quantify, there are organizations that try to track such factors and compare how companies measure up on them.
For a broader view of our top 100, we asked the Reputation Institute, which ranks global companies annually according to how positively they are regarded, to reorder our list. Its RepTrak methodology has respondents rate companies on seven dimensions—products and services, innovation, workplace, governance, citizenship, leadership, and performance—and then calculates a score of 0 to 100 for each.
The companies on our list are those whose reputations were rated highest by respondents in their home countries.
When we looked at the top 10 firms, a few things jumped out:
Bezos wins again. We can probably chalk the dual achievement up to his constant pursuit of a clear vision: to be “the most customer-centric company in the world.” Still, it presents a marvelous irony. The leader most adamantly ignoring Wall Street pressure creates the most value—and the company that spends next to nothing on advertising and PR ends up with a great reputation.
There is really no correlation. The order of names on the two lists is utterly unrelated. While two of the top 10 CEOs from our ranking also lead companies that are in the top 10 reputation-wise, so does a CEO ranked 98th on the original list. In fact these reputation winners are pretty evenly distributed in terms of their value creation.
It’s fair to call it a CEO ranking. Sure, this is a ranking of company reputations, not the reputations of the CEOs themselves—and what is being measured here is their current value, rather than any change in value across the CEO’s tenure. We’re still comfortable with hanging these companies’ reputations on their leaders. First, because among these 10, the average tenure in office is over 12 years—surely enough time to make a mark. Second, because no one is better positioned than the CEO to effect the changes that improve (or ruin) a company’s image.
For longtime leaders, it might be personal. One of the CEOs of our reputational top 10 is a founder (Bezos); one is the son of a founder (Hayek), and two are close to that (Wolfson, whose father was chairman of the same company, and Riboud, whose father spent many years in the same CEO seat before him). Nearly all the rest have been with their companies a long while—as in 27 to 35 years. At least two explanations are possible. Perhaps people outside the company respond well to long-term leaders, so reputation scores tend to rise with tenures. Or it could be the other way around: Maybe leaders whose identities are so thoroughly tied up with their companies’ are more attuned to leaving legacies that aren’t only about financial value created.