Corporate CEOs often stick to a familiar mantra when discussing their compensation: high compensation is crucial to attracting talented leaders needed to ensure long-term company performance.
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MSCI, a research firm, analyzed 800 CEOs’ compensation at 429 big and middle-sized companies between 2006 and 2015. “Meanwhile, $100 invested in the companies overseen by the lowest-paid CEOs would have increased to $367”.
“We found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance”.
The MSCI study compared stock appreciations and dividends over a 10-year period with cumulative CEO pay, though excluded 17 high-performing companies, such as Apple, before examining that relationship, because those companies were considered outliers with “significantly higher (returns) than all other companies”.
The report – Are CEOs paid for performance?
After adjusting the results for company size and sector, companies with lower total CEO pay were consistently providing higher long-term investment returns.
A new study sought to find the answer, according to Fortune. In their essay, the academics contend that performance-based pay for CEOs makes absolutely no sense: research on incentives and motivation suggests that the nature of a CEO’s work is unsuited to performance-based pay.
Many people have complained about huge salary boosts to heads of companies, now these increases don’t actually improve business performance; there will be questions raised why these packages are offered.
This revelation comes at a time when executive pay is already receiving more scrutiny, and with good reason: CEO pay is 10 times larger than it was 30 years ago, according to the Economic Policy Institute.
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Researchers say that company decisions may be distorted by the emphasis on annual reviews and CEO pay reports, which puts too much focus on short term results.
