Financial Q&A: Readers' money questions answered
Where to go to find the latest stock index information, and some thoughts on CEO pay.
Q:Our local paper has quit daily reporting of the year-to-date change of the Dow Jones Industrial Average, S&P 500, and Russell indexes. I have used this data for years as an easy way to compare to my portfolio, to be sure I was doing well. I have found 52-week changes online, but nothing year-to-date.
P.C., via e-mail
A: Your best bet is to head to the Internet and go directly to the companies that produce these numbers. For the Dow, look at www.djindexes.com. For any of various indexes kept by Russell, look at www.russell.com. And for Standard & Poor's, visit www.standardandpoors.com.
Knowing which Russell index you follow could be important, because it publishes nearly 30 of them. Dow and S&P likewise publish a variety of indexes, so once you land on their websites you can pretty much tailor one of their benchmarking tools to what you own.
The index you choose should track investments that are as similar to your own as possible, says Greg Fernandez, a certified financial planner in McLean, Va., and you should understand the differences between the index and your portfolio. For example, he says that if your portfolio is 60 percent stocks and 40 percent bonds, then the S&P 500 or the Dow Jones Industrial Average may not be the most appropriate benchmarks for your overall portfolio. Neither tracks bond performance.
Q:I'm wondering how a person can evaluate whether a CEO is being overpaid and how one can recognize that his or her board members are cronies and therefore likely to vote too large a salary?
V.M., Wilmette, Ill.
A: A CEO's compensation is often a matter of discussion in the press, particularly following a poor performance. But it's important to remember that CEOs negotiate compensation packages with their prospective employer through the company's board of directors before accepting the position, says Vince Clanton, a certified financial planner in Atlanta.
In general, the board wants the compensation package tied to the interests of the shareholders, with standards set for profitability and share price, for example. A CEO is a special employee because of his or her ability to influence a firm's overall performance – arguably more than any other employee, Mr. Clanton says.
To induce great talent to join a corporation requires that the package be competitive. When the enterprise is successful, everyone is pleased. If there are problems, and the CEO is replaced, then there are recriminations about the compensation.
In hindsight, a CEO's pay may be a bad deal. But to suggest that the directors are cronies does them a disservice, says Clanton. Directors are elected by shareholders to be their representatives. These days, directors have taken on significant responsibilities to do the best job that they can do for the corporation and the shareholders, he says.
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