Intellectual Property - Russell L. Parr - ebook

Intellectual Property ebook

Russell L. Parr

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Update yourself on the latest developments in Intellectual Property regulation and practices As the 2019 supplement to the Fifth Edition of Intellectual Property, Valuation, Exploitation, and Infringement Damages, this handbook covers changes made to laws and industry practices within the last year since the current edition's release. Like its parent volume, it is designed to simplify the process of attaching a dollar amount to intangible assets, be it for licensing, mergers and acquisitions, loan collateral, or investment purposes. The author explains commonly used strategies for determining the value of Intellectual Property, as well as methods used to set royalty rates based on investment rates of returns. The text also examines the business economics of strategies involving Intellectual Property licensing and joint ventures, providing practical tools for evaluating the investment aspects of such arrangements and discussing the legal, tax, and accounting practices and procedures related to them. In addition, analytical models are provided that can be used to determine reasonable royalty rates for licensing and for determining fair equity splits in joint venture arrangements. The author gives these models practical applications, critiquing commonly used royalty rate derivation techniques and presenting real world examples of exploitation strategies being used by major corporations. * Understand the theory behind Intellectual Property law and industry practices * Learn from practical real-world case studies * Ensure compliance with any relevant regulations * Get ahead of the competition by subscribing and being among the first to receive the supplement Written by the President of Intellectual Property Research Associates, this supplement is an excellent expansion of the foundation laid in Intellectual Property, Valuation, Exploitation, and Infringement Damages. It will prove a valuable investment for any professional whose field deals with Intellectual Property, its law, and its administration.

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Liczba stron: 223




Table of Contents

COVER

ABOUT THE AUTHOR

PREFACE

CHAPTER 2A—SCANDALOUS TRADEMARKS

CHAPTER 3A – ASSEMBLED WORK FORCES ARE VALUABLE BUT MAYBE NOT THE CHIEF EXECUTIVE OFFICER

CHAPTER 16A—ROYALTY RATES FOR LICENSING, DATA SOURCES

CHAPTER 27A—

EXMARK

ESTABLISHES NEW ROYALTY DAMAGES MODEL

APPENDIX C‐1—FOOD & BEVERAGE INDUSTRY ROYALTY RATES AND SUPPORT FROM THE 25% RULE

NOTE

CHAPTER 2A: SCANDALOUS TRADEMARKS

LATHAM ACT DISPARAGEMENT CLAUSE IS STRUCK DOWN

SOME IMMORAL AND SCANDALOUS TRADEMARKS STILL FIGHT FOR REGISTRATION

OUTSTANDING CONSTITUTIONAL SCRUTINY AND STATUTORY INTERPRETATION QUESTIONS

NOTE

CHAPTER 3A: ASSEMBLED WORK FORCES ARE VALUABLE BUT MAYBE NOT THE CHIEF EXECUTIVE OFFICER

KEY PERSONNEL CAN BITE YOU IN YOUR SHARE PRICE

NOTES

CHAPTER 16A: ROYALTY RATES FOR LICENSING, DATA SOURCES

CHAPTER 27A:

EXMARK

ESTABLISHES NEW ROYALTY DAMAGES MODEL

EMV AND REASONABLE ROYALTY DAMAGES

EXMARK MANUFACTURING COMPANY V. BRIGGS & STRATTON POWER

EXMARK V. BRIGGS & STRATTON

BACKGROUND

DAMAGES

NOTES

APPENDIX C1: FOOD & BEVERAGE INDUSTRY ROYALTY RATES AND SUPPORT FROM THE 25% RULE

MARIO ANDRETTI—5% ON SALES

BOTTLE DESIGN—”TRINITY”—8% OF SALES

BIG LEAGUE CHEW—2.5% TO 5% OF SALES

BRITNEY SPEARS—9% OF SALES

BERGHOFF BEER TRADEMARK—$1.2 MILLION

BEVERAGES—$0.25 (CDN.) PER CASE

CHAMPIONLYTE—3% TO 6% ON SALES

CHEESE—5% ON SALES

COOL LUC—4% OF SALES

COMIC BOOK MILK—2.5% TO 11% OF SALES

CRICKET WORLD CUP SPONSORSHIP—$3.69 MILLION

DETHRONE ENERGY DRINK—5% TO 12% OF GROSS PROFITS

DAIRY BRAND—2% OF SALES

DAIRY PRODUCTS—2% ON NET SALES

DANNON/YOCREAM CO‐BRAND—4% ON SALES

DAVE MIRRA—7% ON SALES

DEL SUNSHINE—5% OF NET SALES

DISNEY CHARACTERS WATER—4% OF NET SALES

EGGS—$0.01 PER POUND TO $0.05 PER DOZEN

F.I.T.T. ENERGY BEVERAGE – $0.05 PER BOTTLE

FOOD FLAVOR—$30 MILLION DEVELOPMENT COST PLUS 1% TO 4% OF SALES

FOOD FLAVOR—$20 MILLION DEVELOPMENT COST PLUS 1% TO 4% OF SALES

FRENCH FRIES/VENDING—5% OF SALES

HAWAIIAN TROPIC—4% OF SALES

HEALTHY FOOD—CASH, STOCK, AND 10% OF SALES

ICE DRAFT—$5 MILLION

KRISPY KREME—2% ON SALES

MARVEL'S AVENGERS ASSEMBLE CHARACTERS—5% OF SALES

MARVEL'S HEROES FLAVORED MILK—2% TO 4% OF SALES

MARVEL'S HEROES FLAVORED MILK IN THE MIDDLE EAST—11% OF SALES

MEATBALLS—1% TO 6% OF NET SALES

MEXICO WATER AND FRUIT DRINKS—2% OF SALES

MR. PEANUT SNACKS – $0.02 PER GALLON

NEW LEAF BRANDS BEVERAGE – 4% OF NET SALES

PACKAGING/BEVERAGE CONTAINER – STOCK PLUS 2% OF GROSS PROFITS

PACKAGING—$335,000 PLUS 2% ON SALES

PACKAGING—20% OF SALES

POCKET SHOT ENERGY DRINK—1.5% TO 7% ON SALES

S&W AND IL CLASSICO TRADEMARKS—2% ON SALES

SLIM JIM AND PENROSE TRADEMARKS – $11 MILLION

SLIM SLAMMER MILK—0.25% OF SALES

SUNKIST, VLASIC, FRENCH'S, AND TABASCO TRADEMARKS—3% TO 5% OF SALES

SWEET 'N LOW—7% ON SALES

TOBACCO—2% OF SALES

TEA MANUFACTURER—2% OF SALES

“THIRST AID” SLOGAN—$10.3 MILLION

THROWDOWN—10% OF SALES

UNWIND BEVERAGE – $0.60 FOR EVERY 24 CANS AND $0.12 PER 12‐PACK

UNIVERSITY OF TEXAS AT AUSTIN WATER—8% OF SALES

VERYFINE TRADEMARKS—$513,500

WARNER BROS. BEVERAGES—3% OF SALES

WATER FILTERING—2% OF SALES

WATER TECHNOLOGY—$0.30 TO $0.60 PER CASE

WATER TECHNOLOGY—1% TO 5% OF SALES

WATER TECHNOLOGY—$300,000 PLUS 5% TO 7.5% OF SALES

WILL ROGERS WATER—3% OF SALES

YOPLAIT YOGURT TRADEMARK—$400,000 PLUS 3% OF SALES

NOTES

INDEX

END USER LICENSE AGREEMENT

Guide

Cover

Table of Contents

Begin Reading

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5TH EDITION

INTELLECTUAL PROPERTY

VALUATION, EXPLOITATION, AND INFRINGEMENT DAMAGES

 

2019 CUMULATIVE SUPPLEMENT

 

 

RUSSELL L. PARR

 

 

 

 

 

 

Copyright © 2019 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978‐750‐8400, fax 978‐646‐8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201‐748‐6011, fax 201‐748‐6008, and online at http://www.wiley.com/go/permission.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging‐in‐Publication Data:

ISBN 9781119356219 (cloth); ISBN 9781119538202 (supplement)ISBN 9781119538240 (epub)ISBN 9781119538233 (ePDF)

Cover Design: Wiley

ABOUT THE AUTHOR

Russell L. Parr is President of IPRA, Inc. He is an expert at determining the value and royalty rate pricing of intellectual property.

For over 30 years, Russell has completed complex consulting assignments involving the valuation and pricing of patents, trademarks, copyrights, and other intangible assets. His opinions are used to accomplish licensing transactions, acquisitions, transfer pricing, litigation support, collateral‐based financing, and joint ventures. Russell also has served as an expert witness regarding patented technology infringement damages and has testified at trial or deposition over 70 times. Past assignments have included the valuation of the Dr. Seuss copyrights and the patent portfolio of AT&T. Russell has also conducted valuations and royalty rate studies for pharmaceuticals, semiconductor process and product technology, agricultural technology, automotive battery technology, biotechnology, camera technology, chemical formulations, communications technology, computer software, cosmetics, consumer and corporate trademarks, drug delivery systems, flowers, incinerator feed systems, lasers, medical instrument technology, motivational book copyrights.

Russell has authored or co‐authored 10 books published by John Wiley & Sons. His books have translated into Japanese, Korean, Italian, Chinese, Romanian, and Russian. His flagship book is Intellectual Property: Valuation, Exploitation and Infringement Damages, fifth edition.

Russell also publishes, through IPRA, Inc., three royalty rate resource books, which have been sold all over the world. These books are dedicated to reporting detailed information about the economic aspects of intellectual property transactions including licensing. The titles are Royalty Rates for Technology, sixth edition; Royalty Rates for Trademarks & Copyrights, fifth edition; and Royalty Rates for Pharmaceuticals & Biotechnology, eighth edition.

Russell has a master's in business administration from Rutgers University (1981); and a bachelor of science in electrical engineering from Rutgers University (1976). His professional designations include Chartered Financial Analyst (CFA), Accredited Senior Appraiser (ASA), and Certified Licensing Professional (CLP). He is a member of the Licensing Executives Society and on the advisory board of three professional publications, Licensing Economics Review, IP Litigator, and The Licensing Journal. Russell is also on the Advisory Board Member of Innovation Asset Group, a company developing enterprise software for intellectual property management. He also served on the Intangible Asset Valuation Standards Committee of the American Society of Appraisers.

PREFACE

This is the first supplement to the fifth edition of Intellectual Property: Valuation, Exploitation and Infringement Damages. It contains the following chapters.

CHAPTER 2A—SCANDALOUS TRADEMARKS

A new category of trademarks has emerged from the courts. Section 2(a) of the Lanham Act says that the USPTO may refuse to register any trademark that “consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.” Recently, the U.S. Supreme Court struck down the Lanham Act's disparagement clause as unconstitutional in Matal v. Tam.1

CHAPTER 3A – ASSEMBLED WORK FORCES ARE VALUABLE BUT MAYBE NOT THE CHIEF EXECUTIVE OFFICER

The chief executive officer (CEO) is the most expensive employee at a company. Their pay packages can include pay, bonuses, shares of stock, and stock options. Boards of Directors try to tie CEO compensation to company and share price performance, but the results do not always work out. This new section presents evidence that CEOs are often over‐rewarded for marginal company performance. When valuing an assembled workforce, special considerations are needed when considering the CEO.

CHAPTER 16A—ROYALTY RATES FOR LICENSING, DATA SOURCES

This chapter provides information about resources that are available for discovering royalty rate data that can serve as guidance for use in licensing agreements.

CHAPTER 27A—EXMARK ESTABLISHES NEW ROYALTY DAMAGES MODEL

In Exmark Manufacturing Company v. Briggs & Stratton Power, the U.S. Court of Appeals for the Federal Circuit approved a reasonable royalty damages theory based on the total value of an accused product, even though the patented invention was only part of a multicomponent product. Previously, apportionment was handled at the royalty base. Now, the entire value of the product can be used as the base, and apportionment can be handled with an appropriate royalty rate.

APPENDIX C‐1—FOOD & BEVERAGE INDUSTRY ROYALTY RATES AND SUPPORT FROM THE 25% RULE

Royalty rate data from Royalty Rates for Trademarks & Copyrights, published by IPRA, Inc. is reported along with a discussion of the state of the food and beverage industry. Generally, the food and beverage industry is very competitive resulting in thin profit margins and royalty rates for food & beverage trademarks reflect the low profit margins with low royalty rates. This supplemental chapter presents a discussion about the stresses in the food and beverage industry along with royalty rates found in the industry. In some cases, relatively high royalty rates are being paid, even in an industry known for low profit margins. This may be a sign of desperation as industry participants attempt to reshape their companies and address new and fundamental shifts in the marketplace.

The data presented in this new section is then compared to royalty rates indicated from application of the 25% Rule.

NOTE

1

. 137 S. Ct. 1744 (June 19, 2017).

CHAPTER 2ASCANDALOUS TRADEMARKS

As previously discussed in the main text on page 29, a trademark is used to identify the source of a product or service and to distinguish that product or service from those coming from other sources. As defined in the Trademark Act of 1946 (the Lanham Act), a trademark is “any word, name, symbol or device or any combination thereof used by someone to identify and distinguish his goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods… .” A trademark also serves as an assurance of quality—the consumer comes to associate a level of quality with the goods or services bearing a given trademark. Trademarks have been described as the embodiment of goodwill. They convey product characteristics such as quality, value, safety, and prestige.

Not every word or symbol is acceptable as a trademark. Geographic names or surnames generally cannot be registered, and the same is true of commonly used words for an object or good, such as “knife,” “cotton,” or “cup.” Marks that would be misleading (vis‐à‐vis the intended goods or services), or those in poor taste are not registrable. Trademarks are categorized as follows:

Fanciful Marks

. These are words that are made up and have no built‐in meaning, such as XFINITY, VERIZON, LEXUS, and CHEERIOS.

Arbitrary Marks

. These are existing words with no relation to the goods or services with which they are associated, such as APPLE (computers), SHELL (petroleum products), WINDOWS (software), or NIKE (sportswear).

Suggestive Marks

. These are words that suggest some attribute of or benefit from the goods or services, but do not describe the goods themselves, such as COPPERTONE (tanning lotion), CATERPILLAR (tractors), or WHIRLPOOL (washers).

Descriptive Marks

. These describe the goods or services or a characteristic of them. They cannot be protected until they have achieved distinctiveness through use and advertising, which is called acquiring “secondary meaning.” Examples are CAR‐ FRESHENER for an auto deodorizer, RICH 'N CHIPS for chocolate chip cookies, or the descriptor GOLD MEDAL for flour or BLUE RIBBON for beer.

Generic Marks

. These are the weakest types of “marks” (and cannot even qualify as “marks” in the legal sense) and are never registrable or enforceable against third parties. Because generic words are the common, everyday name for goods and services and everyone has the right to use such terms to refer to their goods and services, they are not protectable. An example would be to try to register the mark BICYCLE to use in the bicycle business.

Trademarks are used to identify goods. Many common trademarks are some form of the owning company's name, usually in a distinctive type style, or a logo. Examples are IBM, GM, GE, GOODYEAR, and AT&T.

LATHAM ACT DISPARAGEMENT CLAUSE IS STRUCK DOWN

Section 2(a) of the Lanham Act says that the U.S. Patent Office (USPTO) may refuse to register any trademark that “consists of or comprises immoral, deceptive, or scandalous matter; or matter that may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.” Recently, the U.S. Supreme Court struck down the Lanham Act's disparagement clause as unconstitutional in Matal v. Tam, 137 S. Ct. 1744 (June 19, 2017). The case involved an Asian‐American dance‐rock band named The Slants. who sought to register their band name as a trademark. The U.S. Patent and Trademark Office rejected the band's application to register its name under Section 2(a) of the Lanham Act. The case made its way to the Supreme Court, which struck down the disparagement clause as viewpoint discrimination in violation of the First Amendment's free speech clause.

Since this decision the Washington Redskins football team and the D*kes on Bikes Women's Motorcycle Contingent have prevailed in their federal trademark registration disputes. Another trademark application deemed questionable was recently approved for CH*NKY MINKY FRIENDS FOREVER. Another win was recorded by SLANT'D, the name of a magazine that celebrates Asian American identity on July 10, 2018.

SOME IMMORAL AND SCANDALOUS TRADEMARKS STILL FIGHT FOR REGISTRATION

Eric Brunetti founded FUCT in 1990, and the brand's clothing is distributed by stores like Urban Outfitters. In 2011, Brunetti sought to register the FUCT mark with the USPTO. The USPTO rejected the application. FUCT was looked at as the past tense of the verb “f*ck,” and was deemed vulgar. Brunetti's case eventually made its way to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit in the Brunetti case wrote, “independent of whether the immoral or scandalous provision is viewpoint discriminatory, we conclude the provision impermissibly discriminates based on the content in violation of the First Amendment.”1 The next step is the U.S. Supreme Court. Meanwhile, the USPTO continues to receive applications for questionable trademarks. Such applications are pending including: Applications to register several other variations of the word “f*ck” have been suspended, such as AMERICAN AS F*CK, TEAM F*CK YOU, and JUST F*CK IT.

Also awaiting a Supreme Court decision in Brunetti are applications to register variations of the word “c*nt” including two related to campaigns to prevent texting and driving (C*NT: CAN U NOT TEXT and IF YOU TEXT AND DRIVE YOU'RE A C*NT).

OUTSTANDING CONSTITUTIONAL SCRUTINY AND STATUTORY INTERPRETATION QUESTIONS

Are trademarks considered “commercial speech”? If so, laws relating to trademarks might be subject to relaxed scrutiny for constitutional compliance rather than strict scrutiny.

While Matal v. Tam adds another category to the list of trademarks, we are not likely going to see a rush on the USPTO for the registration of scandalous trademarks. Most companies are trying to attract the attention of a wide‐ranging audience and any trademark that might offend the politically correct marketplace will not be desirable.

NOTE

1

.  Brian Iverson, “Disparaging, Immoral, and Scandalous Trademarks Since Matal v. Tam,” IP Watchdog, August 11, 2018,

http://www.ipwatchdog.com/2018/08/11/disparaging‐immoral‐scandalous‐trademarks‐matal‐tam/id=100179/

.

CHAPTER 3AASSEMBLED WORK FORCES ARE VALUABLE BUT MAYBE NOT THE CHIEF EXECUTIVE OFFICER

An assembled workforce is the existing collection of employees that permits a company to operate at peak efficiency. Without a well‐trained and knowledgeable collection of employees all of the assets of a company sit idle. Without employees, no one is manning the computers in accounts receivable to make sure customers are making timely payments. Manufacturing equipment may be humming with electrical energy, but no one is making sure that raw materials, subassemblies, and final products are zooming through the manufacturing facility. No one is inventing new products, developing marketing campaigns, calling on new customers or handling human resources questions. Without an assembled workforce nothing happens. No profits. No investment rate of return.

When an acquirer sets up an opening balance sheet for an acquired entity, the acquirer is required by accounting standards to record the fair value of the assets acquired and liabilities assumed. The premium paid—which is equal to the purchase price in excess of the acquired net tangible assets' fair value—must first be attributed to the fair value of identifiable intangible assets, such as customer lists and relationships, contracts, patents, and trademarks. Any excess premium is then recorded as goodwill.

An assembled workforce is not itself an identifiable intangible asset. But an assembled workforce may affect the value of identifiable intangible assets. When an acquirer uses an excess earnings method to place values on identifiable intangible assets, the cash flows from the asset are often reduced by a contributory asset charge for the value of the assembled workforce. This asset charge is essentially an expense for the use of the workforce that contributes to the realization of the value. The charge reduces the net income expected to be realized from the identifiable intangible asset and therefore, the value attributed to these assets.

The assembled workforce asset charge is based on the value of an assembled workforce, measured as the cost to recruit and train a workforce to replace the existing service capacity of the acquired one. These calculations often have limitations.

Consider one of the most expensive employees a company possesses—the chief executive officer (CEO). These individuals are the highest paid employees at almost all companies. They determine the strategic direction of a company and then drive all other executives and employees to execute their plan.

It is common to think of these employees as the most important, but studies show this assumption may be wrong.

The New York Times published data of the 200 of the highest‐paid chief executives in American business. The data comes from the Equilar 200 Highest‐Paid CEO Rankings, which lists the compensation of 200 chief executives of public companies with annual revenue of at least $1 billion. The data was for the year ended 2017.1

The chart below shows the poor relationship between the top 100 CEO compensation packages and the performance of their company's share price for 2017. CEO compensation is a combination of salary, bonus, perks, stock, and options.

A positive 20% return can be obtained by paying a CEO over $100 million. The chart also shows the same performance and even more can be obtained from CEOs being provided a $20 million compensation package. While it would have nice to see higher performance associated with higher compensation, the chart doesn't even come close to showing such a relationship.

Corporate boards continue to try to tie CEO pay to company performance. Specifically, they want CEO pay to reflect improved company performance and shareholder returns. Great performance equals great pay. Poor performance equals lower pay and often the ouster of the CEO. In reality, CEO pay and performance often don't match up.

Speaking about CEO pay and company performance, Herman Aguinis, a professor of management at George Washington University School of Business told the Wall Street Journal, “Stars are often underpaid, while average performers are often overpaid.”2 In support of this statement, the Wall Street Journal cited the following:

CBS Corp. paid its chief, Leslie Moonves, $69.3 million last year; total shareholder return was negative 6.2%. His pay was virtually unchanged from $69.6 million in 2016 when the broadcaster achieved a one‐year return of 37%.

Allergan PLC's Brent Saunders received a 700% raise in 2017 to $32.8 million, despite total shareholder return of negative 21%. The compensation package came during a year when Allergan ran into patent setbacks for one of its best sellers, dry‐eye drug Restasis, which contributed to a 22% drop in the firm's share price for the year.

One of the biggest gaps between CEO pay and shareholder return was at aerospace‐parts company TransDigm Group Inc. For much of the year, TransDigm's stock took a beating from short sellers who have criticized its acquisition‐driven business model, but the volatility had little effect on then‐CEO Nicholas Howley's pay package. Shares, including reinvested dividends, returned just shy of 5% for the fiscal year that ended Sept. 30, 2017, underperforming the broader S&P 500 index for the first time in a decade. During the same period, Mr. Howley earned $61 million, more than triple the $18.9 million he made in 2016.3

An extreme and contradictory case of the value of a CEO involves LuluLemon Athletica. In June 2018, share prices of the company which sells “athleisure wear,” turning pricey women's yoga wear into mainstream fashion, were up nearly 15.5 percent at $121.26. This happened without a CEO.

CEO Laurent Potdevin had a multi‐year relationship with a female designer at the company he oversaw. This was one of the issues that caused his departure from the company on February 5, 2018. A company statement indicated that Potdevin, “fell short of … standards of conduct.” LuluLemon did not find a replacement for the CEO job until July 2018, but during the interim the company prospered and the company share price soared.

It can be argued that the strategic plan Potdevin put in place leading up to his departure fueled LuluLemon's success, but this brings up the question about the need for a high‐paid CEO. Once a strategic plan is established, is there a need for a highly‐paid CEO? Companies may find that temporarily employing a strategic planning consultant to establish a plan, then leaving execution to other employees can serve just as well as employing a high‐priced centerpiece for the long haul.