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CEOs Are Overpaid? Tell That to a Lululemon Athletica inc. (LULU) Shareholder

By now, you’ve probably heard that Lululemon Athletica inc. (NASDAQ:LULU) CEO Christine Day will be leaving the company, as she announced in last week’s earnings report. Despite the recent debacle over see-through yoga pants, the decision to leave was hers, as she called it “personal” on the call and added that “plans have been laid for the next five years and a vision set for the next 10.”

Despite Day’s optimism about her company’s future, shareholders didn’t take the news too well. The stock fell 17.5%, and that was with an earnings beat and a guidance lift, meaning shares would presumably have gone up without Day’s announcement. The news sliced more than $2 billion off the company’s market value; clearly, investors view their CEO as precious.

And while the event has brewed plenty a commentary and concern about where the company is headed and who will take the reins, Day’s departure also offers a reminder about the value and importance of a CEO.

Lululemon Athletica inc. (NASDAQ:LULU)Her record during her five years at the helm is nearly impeccable by any conventional standard. The retailer’s share price rose nearly 500% during her tenure, compared with her predecessor, Robert Meers, who saw shares fall during his one year leading the retailer as a publicly traded company. Other results under Day were equally impressive. Trailing-12-month revenue grew by 333% over the past five years on superb same-store sales, an aggressive store expansion plan, and a new e-commerce platform. Earnings per share were up 516% as more of those sales flowed to the bottom line. Other traditional metrics were also strong, such as return on assets and return on equity, which hovered around 30% and 35%, respectively. And let’s not forget that Lululemon Athletica inc. (NASDAQ:LULU) has been so successful that it’s spawned its own legion of imitators, including traditional apparel heavyweights such as The Gap Inc. (NYSE:GPS), Nordstrom, Inc. (NYSE:JWN), and NIKE, Inc. (NYSE:NKE).

And what did Lululemon Athletica inc. (NASDAQ:LULU) pay Day for this market-crushing value creation? According to proxy statements, her total compensation topped out at $4.28 million in 20120. Seems like a bargain for someone whose leadership the market values at more than $2 billion.

Not all CEOs are created equal
According to polls, most Americans think CEOs are overpaid, but Lululemon Athletica inc. (NASDAQ:LULU)’s share price drop following Day’s exit is a reminder that often, the talent and direction occupying the executive chair is a bargain for these companies. The problem with CEO compensation is that terrible leaders are often paid as much as the great ones. Take J.C. Penney Company, Inc. (NYSE:JCP), for example, which is coming off one of the worst years in the history of retail. In 2011, the company paid more than $150 million, including stock awards, to beckon Ron Johnson and three of his henchmen into the executive suite. All four are now gone, and that awards package is proof that the board of directors may deserve just as much blame as Johnson and his team does for last year’s debacle.

CEO compensation is difficult to get right, as a number of factors outside the chief’s control affect performance and share price. In Christine Day’s case, shareholders will get an even clearer sense of her value after her successor is named and they have time to assess the new leader’s performance.

The article CEOs Are Overpaid? Tell That to a Lululemon Shareholder originally appeared on Fool.com.

Fool contributor Jeremy Bowman owns shares of Nike. The Motley Fool recommends lululemon athletica and Nike and owns shares of Nike.

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