Worst Tech CEOs Earn the Most Money

tappytibbins writes to tell us Baseline is reporting that in a recent look at the 100 largest tech companies they found that there was a striking correlation between the highest paid CEOs and the lowest returns. From the article: "The one-third highest performing companies paid their chief executives an average of $7.12 million--while the bottom third paid their CEOs $9.29 million. The study compared direct compensation, which includes base salary, bonus and value of stock grants. Why the disconnect? Jack Dolmat-Connell, founder and president of the firm, cites the phenomenon of 'chasing the median': Companies benchmark their executive compensation figures on peers instead of looking at factors related to performance."

Comments

There's a Problem Here

[ichin4]

There is a problem with this study: it measures shareholder return as a percentage, but compensation as a dollar value. If a CEO grows a $10B company by 1%, he generates $100M for shareholders. If a CEO grows a $100M company by 10%, he generates only $10M for shareholders. The study implies that the second CEO deserves to be paid more, because his company had a larger percentage return. But one could certainly make a good argument that the first CEO deserves to be paid more, because he generated a larger absolute return to shareholders.

In fact, given the general trend that smaller companies tend to grow faster than large onces, you would expect the data to look like this even if there is no intrinsic correlation between CEO pay and corporate performance.

I don't write this because I believe that the market for CEO pay works. I write this only because this particular study doesn't prove that the market for CEO pay doesn't work.

Re:Problem with pay-for-performance

[iocat]

The other thing to consider is that the CEOs at the poorly performing companies knew the companies sucked, and only took the jobs for big bucks. I've been recruited to an inferior company, and offered more money, because they knew they had to pay more than the superior company I was at. This happens all the time, as inferior companies try to buy their way out of inferiority.