Underpaid and underowned

I have been taking a closer look at the companies with underpaid bosses listed in last week's column. These were scorching investments, way ahead of companies with overpaid bosses and even further ahead of the S&P 500 from which they were drawn. And the investment implications run ahead of the governance ones. Is this an investible system?, I wondered.

Fittingly, the answer to that question is not easy. Glass & Lewis' Overpaid/Underpaid list only goes back a few years. There is no knowing whether the underpaid companies of 2011 would have figured on it ten years ago, had Glass Lewis been compiling it then. Moreover, the factors that give rise to modest pay are probably rather delicate, and in many cases, patently transient.

Indeed, in its commentary, Glass Lewis fretted that Apple - a stalwart member of the lower paid list - might migrate to the other end of the spectrum as its rating is the net result of netting what is arguably the highest executive pay against Apple's transcendental share price performance. Following the death of dollar-a-year Steve Jobs (by the time Apple started its current surge, his stake - which had included some hefty and at-the-time criticised share awards - was always worth hundreds of millions of dollars and presumably he considered mere income irrelevant), the report commented, "the spectre of massive executive compensation looms…". In fact, the compensation is already massive: $150m in 2010 divided amongst four executives (excluding Steve Jobs). What looms is the descent from heaven. There were few signs of that this week, but it surely lies somewhere this side of the horizon, as Mr Bearbull has noted.

But even if we can't identify a "lower paid bosses investment mechanism", this simple list of 20 or so companies offers lot of investment inspiration for anyone prepared to trawl through it. Put aside Apple: there are many and various reasons for buying Apple shares; finding it on an underpaid bosses list should not be one of them. The same applies to Amazon, where founder and CEO Jeff Bezos owns a 20 per cent stake worth $10bn on a good day. Like Jobs, he is abstemious on the income front, drawing just $80,000 a year - although Amazon also counts $1.6m of special "security arrangements" as if it were his salary.

What of the work horses of the list? As I looked up the names - many I confess I had never heard of - I experienced several moments of joyous serendipity.

There can be few households in this country who do not have a jar or packet of McCormick herbs or spices lurking in their kitchens. It's the number one in its sector in the USA, Canada, the UK, France, and Spain and its market shares are huge - 40 per cent going on 50 per cent. In these countries, you could characterise McCormick as levying a tiny and unnoticed tax on eating. It has paid a dividend every year since 1925 and has increased it for each of the last 25 years. Compared with Apple or Amazon, it's a plodder. But in stamina terms, its an Olympian.

Fastenal is a US Screwfix, with the kind of scale (2,600 stores) you associate with America. I don't know what its market share is but it has all been established in the last 40 years and whilst generating a devastating dividend record. Public Storage is the grand-daddy of self storage - those retail warehouses where you put your stuff when you have filled your garage. It is the solid market leader with five per cent of the US market, facing abundant opportunities to buy competitors and thereby enhance its already considerable economies of scale. Autozone and O'Reilly are the two biggest US car parts distributors - despite presumably clashing head to head on a daily basis, they have generated ten year share price returns of 400 per cent and 580 per cent respectively.

Sigma-Aldrich supplies a variety of wares including specialist compounds, data and physical kit to scientific laboratories all over the world. Its operating profit margin is 26 per cent and it's another long-standing dividend hero. Its total payout is up 350 per cent since 2001.

The annual reports of these companies - a noticeably unglossy selection - contain more than a few cringe-inducing assertions about putting the customer first and pennies saved being pennies earned. Cringe-making because all investors know how little these mantras usually mean. But these could be the companies who mean what they say. Which doesn't say they won't fall into the hands of managements with a different outlook. But in the meantime, they might deliver what you're looking for.

At first glance, all these look to be the kind of quality share you might buy and forget. If that's your kind of investment, I suggest you look them up one by one.

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