Business Idea #161 – Corporate Pay Financial Ratios and Analysis

by Byron on August 17, 2012

The Problem:

Corporate pay at public companies is outlandish.  That is, in no way, any kind of political statement.  What top execs get paid for what they accomplish is ludicrous.  But the real problem : There aren’t effective ways to measure the value top executives are providing.

The Business

A set of financial ratios that easily identifies executive value and corporate board performance.

For example, simply dividing executive pay into corporate earnings, multiplying by a market cap factor, then ranking vs. a group (all companies, S&P 500, industry, etc.) gives you a real measure of the quality of an executive, a team of executives, or a board of directors.

If that sounds complicated, it boils down to executive pay divided by corporate earnings.  Easy to understand now, right?

Said another way, what percentage of the corporate earnings does a CEO/CFO or C-level suite consume?

There are companies that play in this space – GMI, ISS, Equilar – but all do so for the benefit of the companies themselves (how much can we get away with paying ourselves) or the benefit of large, institutional shareholders (how should we vote, since we have to).  There is no one to inform smaller shareholders or the general public.

Doableness

Acquiring all of this data is far easier than you think.  I know because I have much of it.  The problem is the monetization model.  How do I make any money off of this idea?

Ultimately, my theory is that optimal levels of executive pay lead to share price outperformance.  I have the beginnings of proof on that concept.  If that turns out to be accurate and repeatable, a fund/ETF/investment strategy is certainly a way to monetize.  You also have the longshot monetization model – patent and license the ratios/algorithms and get a royalty on their dissemination.  That’s a tough road to hoe, and, ultimately, probably legally unsupportable.

The best way that I came up with was to get traction in the ratio itself, make mine the official number, and sell it.  (In essence, selling the trademark/brand more than the patent/formula.)

My Thoughts

I went as far with this idea as building out the database and putting the beginnings of a front-end on it.  When I saw the beginnings of the final product, I knew it wasn’t going to sell as a membership site, at least not without adjustment.  I hated the monetization model.  But I loved the idea all the more.

My pockets weren’t deep enough, and I projected that access to capital for a niche idea with a risky-at-best monetization model was going to be too difficult.  Therefore, I put it on the shelf.  I hope to be able to take it down someday.

I needed a business that I could start on my budget ($50K), had huge potential, and could start with one tech person and one non-tech person.  the Injury Lawyer Database launches in October.  Perhaps you notice how much lawyer business ideas dominate this blog.  There are also themes of transparency, big data, statistics, trust, and verified.  More to come.

 

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