The $38 million CEO who out-earned his company last year

As chief executive officer of Ultimate Software Group Inc., Scherr's pay tripled to $38.3 million last year, a filing showed this month. That's far higher than his rivals and more than the company earned itself. It even tops the compensation of Microsoft's Satya Nadella, who runs a firm 140 times the size of Ultimate, Bloomberg reports.
But is he worth it? It's a thorny issue that's dogged the company for years, dividing even longtime investors like Fidelity and Calpers. And in the post-crisis era, few areas have come under as much public scrutiny. Support for Ultimate's pay practices have averaged just 66 percent in the past five years, the kind of level that typically triggers company boards to reconsider. What's more, proxy advisers have repeatedly called on shareholders to vote against them, citing a bevy of practices that violate norms of good governance.
And that's in spite of one glaring fact: under Scherr, Ultimate's shares are up more than 1,000 percent since the end of 2008 (roughly 43 percent a year), triple the average return of its competition and easily trouncing the market.
"We avoided this stock for a long time because we find the compensation policy to be somewhat egregious," said Bill Mann, the chief investment officer at Motley Fool Asset Management, which oversees $1.5 billion and is an Ultimate shareholder. "We reconciled it with the fact they're very good operators. We really do like the management team, we just wish their compensation practices were a little more rational."
Mann, whose firm added roughly 40,000 shares of Ultimate in the past year, declined to say whether he would support Scherr's latest package, which is up for a non-binding vote at Ultimate's annual meeting on May 16.
Scherr, who also serves as chairman of Weston, Florida-based Ultimate, wasn't immediately available to comment. Mitchell Dauerman, who has worked closely with Scherr as Ultimate's chief financial officer for almost 20 years, defended the company's pay practices in a telephone interview with Bloomberg News and pointed to its track record of increasing shareholder returns.
"They can look at us and say, over a period of time, management have been good stewards of their invested capital," he said.
Just about everyone supports the ideas behind sound corporate stewardship, which include "say on pay," but there's less agreement over how much they actually benefit shareholders. Over the years, many academic studies have suggested links between good governance and outsize returns, while others indicate there's no correlation at all.
And big asset management firms, which own stakes in hundreds, if not thousands, of companies and are expected to cast several votes for each at annual shareholder meetings, often rely on proxy advisers such as Institutional Shareholder Services and Glass Lewis & Co. to guide them.

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