Management CV’s proprietary CEO and Management Team ranks are designed to provide a concise reference score for the relative skill and quality of either the individual CEO and/or the senior management team. Similar to the techniques described in Michael Lewis’ book on baseball, think “Moneyball for Management” except we are measuring operating skill, incentive alignment, and conflicts of interest. The scores are based on equal sized quintiles with #1 representing the relative “best” scores, #3 representing “average” performance, and #5 representing the lowest or “worst” quality score. Generally speaking, CEOs and or management teams in the top two quintiles #1 & #2 are likely to demonstrate significant outperformance of their relative similar sized industry peers over time based on metrics such as: ROA, ROIC, ROE, and Excess Stock Price Return. Perhaps the most significant statistical effect however is the often dramatic excess underperformance of the worst (#5) skill and quality management teams. Therefore, Management CV’s Team Ranks are perhaps best used as an indicator of what to avoid. Management CV Industry Ranks are not proprietary to us and are provided as further context in which to view the relative performance of management team’s within their broad-based industry group. 33 Industry ranks are calculated based on the change in a company’s stock price over the the last 60 days divided by the change in the entire industry group’s price change over the preceding year. Using price as a proxy for the relative “strength” of an industry group and its popularity with investors. #1 Industries have the strongest relative price strength, #3 are market average, and #5 are the weakest. Industry ranks can be used in conjunction with Management Team or CEO ranks to answer questions such as “Who are the best teams in the weakest industry groups?” or, “who are the best CEOs in the Semiconductor Industry?”.
The management team is comprised of three sets of factors measuring the top 5-6 operating officers of a company and often includes the Chairman, acting as an “Executive Chairman”. MCV compiles the work history of the top operating officers and measure their performance versus an equally weighted, similar sized, similar industry peer group. Management teams who consistently score above their similar sized, similar industry peers are scored well (quintile ranks #1&2), average teams (quintile #3) approximate the equal weighted peer group, and the weakest teams (quintiles #4&5) consistently underperform similar sized, similar industry peers. Over multi-year periods, there is a statistically significant annualized relative stock price spread between the “best” #1 management teams and the “worst” #5 teams of over 20%. The senior operating team is measured against three important factor baskets: Operating performance, Pay & Incentive Alignment, and Fiduciary Risks. All of these factors are measured on a moving average basis over the trailing thirteen quarter period. Write us for more info: info@managementcv.com
The CEO is tracked on a monthly basis over 10 or more years in our database as a unique person entity, regardless of the exact firm or title that he/she holds. We take the CEO’s work history (MM/YYYY) and measure it on a time weighted, moving average basis, versus a set of equally weighted, similar sized, similar industry CEO peers. CEO’s who delivered consistently above the peer average are scored in the top two quintiles (#1&2), CEO’s with average performance score in the #3 quintile, and CEOs who have consistently underperformed score in the bottom two quintiles (#4&5). Bottom quintile CEOs often represent significant idiosyncratic risk to their investors and lenders, and have characteristics like: outlier compensation plans, fiduciary conflicts of interest, high levels of M&A activity, and higher likelihood of class action lawsuits.
Management’s compensation is displayed both by the most current year’s figures for: Cash Salary, Cash Bonus, Equity Performance Grants, and Other as well as 3 year averages that smooth for unusual pay periods where a large lump sum may not be representative of normal pay. For example, Apple and Google have policies whereby they only make irregular equity grants every few years rather than every year. Therefore, Management CV’s average figures for the various pay metrics are generally a better indicator of management true income and potential incentive stakes in their firm. Finally, we also display the important difference between “cash” pay and long term equity incentives “LTIP”. Cash pay includes anything to be paid out in a 52 week period, including cash bonuses. LTIP includes all the various forms of options, RSUs, PSUs, and their variations. “Other” includes potentially cash items like perquisites and various pension adjustments which are generally not cash settled and may intangible benefits to the CEO and other senior executives.
The management team’s operating traction is measured over 9 quarters and net of an equal weighted, similar sized, similar industry peer group. By applying this “double relative” of both industry and size controls we substantially mitigate the “right time, right place” effects that so many investors mistake for operating skill in an executives career track record. Executives who individually or as part of a team have consistently outperformed their equal weighted, similar sized, peers are generally able to generate significantly better ROIC and excess total returns for their investors.
The CEO’s Career Performance Graph “CPG” shows the time-weighted operating performance of the CEO vs his/her Industry for a period of up to 120 months. Performance is calculated as a basket of factors: Operating Revenue, Operating Income, Operating Cash Flow, EBIT/Employees, and Revenue/Employees, net of similar sized, equally weighted, Industry peers. Less than 15% of CEOs have served as the CEO of more than 1 public company, so we credit the individual with the performance return of the firms for whom he/she worked over the prior 10 year period.
The CEO’s operating traction is measured over a period of up to 41 quarters, time weighted for the most recent three years, and net of an equal weighted, similar sized, similar industry peer group. By applying this “double relative” of both industry and size controls we substantially mitigate the “right time, right place” effects that so many investors mistake for operating skill in a CEO’s career track record. Executives who have consistently outperformed their equal weighted, similar sized peers are generally able to generate significantly better ROIC and excess total returns for their investors.