Million-Dollar CIOs: Are They Worth It?

By John McCormick Print this article Print

If they deliver the goods their companies need, they're worth every penny.

The debate continues to rage over chief executive officer compensation. With a dozen or so chief execs now taking home paychecks of $100 million or more, the public perception is that many of these people are overpaid.

Why bring this up? Because with this issue, we present our annual chief information officer compensation ranking. And top CIO pay this year, as it has the last couple of years, has risen right alongside CEO pay.

When we did our annual ranking of the highest-paid CIOs in 2004, the highest salary was $4.26 million. In 2005, it was $5.86 million. This year, Randy Mott, the CIO at Hewlett-Packard, topped the ranking of the highest-paid information chiefs with a compensation package that totaled $10,293,027. All told, 21 CIOs made more than $1 million in 2005 (see Superstar CIOs See Bigger Paydays). And the salaries for the CIOs on our list rose 31% from last year.

So, if CEOs are overpaid, what about CIOs? Are they really worth that kind of money?

"Certain CIOs are overpaid," says Victor Janulaitis, a former CIO who now heads Janco Associates, an information-technology management consultancy that tracks I.T. salaries.

But as Janulaitis and other experts note, whether you think any executive is overpaid depends on how you look at it.

For instance, to make any kind of judgment on CIOs, you just can't look at the top guys. The average CIO in the U.S. makes somewhere between $115,000 and $196,000, according to Robert Half Technology's 2006 Salary Guide. And CIO salaries overall were up only about 2% from the previous year.

Yet, you can't ignore what the top CIOs are making. For the minions toiling away inside data centers—the operations manager pulling in $50,000 or the database administrator taking home $70,000—$1.7 million, the average pay of the 46 CIOs on our list, looks like a ton of money.

Part of the problem is that there are no generally accepted metrics by which high-level CIO pay packages can be judged. One rule of thumb is that CIOs sitting at the executive table should be paid somewhere between 20% and 30% of the compensation realized by their direct boss—in most cases, the CEO. So, you could look at Lehman Brothers CIO Jon Beyman's compensation package of $6.4 million and compare it to what his CEO, Richard Fuld, took home—$29.5 million—and say Beyman was underpaid.

Another way to view the worth of someone like Mott is to evaluate it by the way executives are usually judged—the shareholder return achieved during the exec's tenure. Baseline consultant Paul Strassmann ran some numbers for us. On July 11, 2005, the day Mott joined HP, the company's shares were at $23.87. A year later, they were trading at $32.54. The one-year appreciation was 36.3%, or $32.4 billion. Mott's compensation was just 0.032% of that appreciation. You could make the argument that the $10 million HP paid Mott was well worth the investment. (HP declined a request by Baseline to talk to Mott about his compensation).

Still another way to look at CIO salaries is to compare them against a metric that measures how well their companies manage information. Our Baseline 500 ranking does just that. The ranking is based on a calculation that takes operating profits and divides them by sales, general and administrative costs—basically the cost associated with moving bits and bytes.

Owens Corning CIO David Johns, for instance, pulled down a tidy $2.1 million last year, making him the 10th highest-paid CIO on our list. But Owens Corning was also No. 5 on the Baseline 500 list (and No. 1 in the manufacturing sector).

Clearly there are some CIOs, just like executives at any level, who are underpaid and some who are overpaid. But, in the end, if CIOs deliver the information-technology capabilities their organizations need, at the right time, they can be looked upon as being worth the price. "These men and women are worth every penny you pay them," says David Foote, a management consultant and compensation specialist at Foote Partners. "The magic they have to pull off every week is astounding."

John McCormick

This article was originally published on 2006-08-01
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