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Highest-Paid CEOs Run Worst-Performing Companies, Research Finds (independent.co.uk)
An anonymous reader writes from a report via The Independent: According to a study carried out by corporate research firm MSCI, CEO's that get paid the most run some of the worst-performing companies. It found that every $100 invested in companies with the highest-paid CEOs would have grown to $265 over 10 years. However, the same amount invested in the companies with the lowest-paid CEOs would have grown to $367 over 10 years. The report, titled "Are CEOs paid for performance? Evaluating the Effectiveness of Equity Incentives," looked at the salaries of 800 CEOs at 429 large and medium-sized U.S. companies between 2005 and 2014 and compared it with the total shareholder return of the companies. Senior corporate governance research at MSCI, Ric Marshall, said in a statement: "The highest paid had the worse performance by a significant margin. It just argues for the equity portion of CEO pay to be more conservative."
even a GOOD team will pay. look at what the Cubs just did.
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I know the conclusion they want us to draw, but what about the CEOs given a huge chunk of change and expected to revive a sinking ship. As if a single person can somehow right ineptitude throughout a whole org.
This could be influenced by a number of factors. Higher-paid CEO's might be in larger companies with saturated markets that are more difficult to grow in. Well-paid CEO's could be reducing profits through any number of common practices that are used to lower tax liability.
A more interesting a subtle pattern I saw on this chart is the fact that both groups followed the same market trends very closely. Maybe the real finding is not that highly-paid CEO's do worse for their companies' stock price as low-paid CEO's. Maybe the real finding is that all companies follow market trends and the CEO does very little to affect stock price.
that the kinds of political machinations one has to do to become a highest paid CEO are antithetical to having a non-dysfunctionl great-performing team with a great product.
Insert chart of entry level worker wage growth here.
No - no, it could NOT be! Those zero-sum *whackos* got to Slashdot too! It's not true I tell you - everything is a positive sum game, where you more you reward the rich and *deserving*, the more resources just *exist* to better serve the sheer excellence of the intentions of those in the market!
Entropy is a lie! Hope must win! If we only *trust* in the market enough, it WILL provide! Rational skepticism will only doom us all!
And with enough sarcasm, I might *just* be able to express how little a surprise this but of news is!
Ryan Fenton
TFA says the study adjusted for the size of the company, but I wonder how?
I would assume large companies pay their CEOs more than smaller ones, but large companies have a hard time getting any larger compared to smaller ones. If they already dominate their market, then presumably there's not much left of their market to acquire.
If it weren't for deadlines, nothing would be late.
A good CEO moving to a company that he considers to be a career ender might demand a higher pay for that move. That company might be looking for an excellent CEO to mitigate, or slow, its collapse. To get an excellent CEO, it will cost more due to the risk to the CEO of being tarnished by the, predictable, failure.
To test this, we would also need to look at the company's performance before the high paid CEO entered the picture.
Again, this is just a possible explanation. However, there are so many studies out there that collaborate the theory that CEO pay does not positively reflect on company performance, that we might as well just treat it as a fact.
The real reason for extremely high top salaries is to save money on mid level manager salaries and promote 'no holds barred' competitiveness. Mid level managers see the only path to "good" pay as being to win in a cut-throat game of mid-manager shuffle. The result is that only the most vicious rise to the top and reap the big rewards, instead of equitable sharing. This is largely responsible for the unique American style of business that puts self first. This type of person is not driven to maximize corporate value, only to maximize personal earnings. Note, I am not saying it is good, only that it is.
hahahaha not the best CEO.
Remember kids, if you're not paying for the service, YOU ARE THE PRODUCT THAT IS BEING SOLD.
to attract the kind the talented CEOs that can save these poor performers. Prove me wrong, pro tip you can't.
So, it makes sense that the worst performing companies have the highest paid CEOs. A successful CEO always knows a sucker when (s)he sees one.
Another top dog from Google who only was able to make it to the top because he jumped on their bandwagon in a very early stage.
At Softbank he tried to be the Japanese Marissa, squandering millions while cashing in +$100 million a year.
It's sort of obvious because if a board is so easily manipulated to pump up the amount of money gifted to the CEO then they are not likely to be ensuring that the CEO, or they themselves, are doing an adequate job.
There are many examples. Find almost any truly spectacular failure of a large company and you'll find a CEO in the middle of it being rewarded far more for failure than most places of the same size reward success.
I used the word "gifted" deliberately, as in money and benefits well above and beyond what is normally considered deserved elsewhere. There's a Telco near me that had a 10x jump between CEOs despite increasingly poor performance by every measure (subscribers, income, share price etc etc).
Shitheads run good companies into the ground. Film at 11.
Pfffffttt.
captcha bowels
Why do these people keep doing the same reports year after year? Every previous report has said the same thing.
From 2009
August, 2013
August 2013 again
September 2013
June 2014
We don't need any more studies to state the obvious.
We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower
After you've been a CEO of a large enough company, there is nothing else you can do. If the company does well, awesome, you can stay there or move on. If the company does not do well, no one else will hire you or work for you. Plus the reason you got the job was most likely because the last CEO didn't do so well, so the deck was stacked against you. Both you and the compensation committee know this up front so the price goes only goes up.
They are comparing the return rate on the performance of the stock in the company. How many decades has it been since the perceived value of a company has mattered to how well a company is really doing? Companies often times spin off the only/most profitable divisions to make the short term stock price soar only to cause long term failure for the company. I've lost count of how many times I've seen a company's shares tank because they increased profits, but not by as much as projected. The stock price is a fairly meaningless way to rate a company's actual performance in the current system of high frequency trading and short term gain, long term loss market.
A CEO's job is...
A) Run the company in the most successful way that returns the greatest value over the long run.
B) Run the company in the way that most benefits society and the employees.
C) Create the greatest short term growth in stock prices so the current investors, who control their hiring, can sell and realize a profit.
Given it's the involved, activist shareholders that determine most CEO's hiring and firing - and they're looking for a dramatic change in company value over the short term...
Any CEO who chases A or B is an idiot who's going to ultimately get replaced by shareholders who want a sudden bump in value and then to get the hell out. They don't give a damn about whether the company will be worth more money in ten years because they intend to have sold, bought again when value tanks, sold after a short term solve, bought again when the value tanks... and repeated many times.
How a company does over ten years as a metric of CEO efficiency is just a demonstration of completely missing what CEOs are rewarded for.
The CEO who created a massive short term growth, then left and left the company to tank for a while, is worth that large bill to the shareholders who are trying to get just that.
Also, we don't get ponies just because we really, really want one and it's only fair!
Nonono you got it all wrong!
In capitalism you don't "get paid" you "are worth" if they get paid enough to eradicate homelessness in a small city it's because they "are worth" that much, you silly!
Evidently when a person gets paid 1000% more than someone similarly qualified it's because they work 1000% harder!
All those deniers with their silly facts are just jealous of people who work better, harder and have pulled themselves from their bootstraps.You should aspire to be them and work harder, plebeian.That new yacht isn't going to build itself.
...
Looking at their numbers, I note that:
$100 will grow to $265 in 10 years with an annual interest rate of about 10%
$100 will grow to $365 in 10 years with an annual interest rate of about 14%
This seems *extremely* generous, given the market. And there were commentators in a previous Slashdot thread that stated "the age of 7% returns has long passed".
If this study were accurate, the authors should have kept their results close to the vest, and begin investing in the market!
Am I right to be sceptical here? What am I missing in this calculation?
As formulated, this only looks at companies that lasted ten years. That means they're already pretty far ahead of the game compared to the vast majority of businesses. Furthermore, it raises another question: which of these is more likely still be paying out anything in another ten years? Rapid growth often means chasing quarterly gains too hard.
Public companies, like republics, end up with the leaders they deserve.
I think the more interesting question is, "Why do boards of directors hire and overpay mediocre CEOs who actively destroy shareholder value?" And why do the shareholders elect board members who do this?
A strong antidote is to a) pay board members minimal cash compensation for their duties and b) ensure board members have a significant portion of their net worth invested in the company they oversee. This rather simply aligns board members’ interests with that of other shareholders. Sitting on a board should not be a cushy job -- it should be a privilege to oversee the management team responsible for making you richer and richer. If enough board members own chunks of the company, then bring in "outsiders" for their perspectives, but always make sure the board collectively has enough skin in the game.
With respect to compensation, I frequently see executive pay associated with bullshitty metrics that are not tied to owners’ total returns or increasing the enterprise’s per-share intrinsic value. When executives are compensated with stock, the cost to owners (share dilution) is frequently obfuscated in the financial reports, or considered income through the use of legal but creative accounting. (Adobe and others were notorious for this chicanery before the dot-com bubble imploded.)
When I consider purchasing shares, I always look at "corporate governance," CEO attitude, and board composition as important qualitative indicators of quality. Frankly I’m shocked by the number of publicly traded enterprises that retain significant earnings, and then piss the money away on failed acquisitions, ostentatious headquarters or skyscrapers, or, in the case of Bethlehem Steel before the bottom fell out of the industry, three separate corporate golf courses -- one for management, middle management, and employees.
This is one of the reasons I’m fond of dividends: I don’t trust many CEOs to smartly allocate capital to generate satisfactory rates of return. It takes a special sort of person to either sit on cash for extended periods until a truly outstanding opportunity presents itself, or just admit that the enterprise has exhausted sensible options for capital redeployment, so time to bust out the dividends and share repurchases.
The topic of corporate governance seems to be in vogue at the moment. Just last week, several CEOs and asset management firms released an open letter advocating for public companies to adopt "commonsense" governance principles [1]. And the large asset management firms like Vanguard are starting to become more vocal about how the companies they own are managed, if this letter is any indication [2]. Vanguard and other "passive" asset management firms have enough weight (literally trillions of dollars under management) to force change, and boards know it.
[1] https://corpgov.law.harvard.ed...
[2] https://corpgov.law.harvard.ed...
Apparently he only paid himself about $4.3M last year for his part in the continued destruction of Sears and KMart, I would have figured he would have screamed his way to higher compensation.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
I'd guess it has more to do with shitty, bad-performing companies having to either pay a lot to get someone to run it, or to get someone good enough to try to save them.
-Styopa
Offer a high reward for succeeding for drastically increasing a company's business (or saving it), not for just.....showing up. For example, Marisa Mayer has a golden parachute for $50 odd million dollars. Maybe she would have worked a little harder at turning around Yahoo if she had to move in with Liz Homes because she was going to out on her ass, like all the people she laid off?
Combine that with the fact that working stiffs are supposed to work their asses off for as little as eight bucks an hour...sounds a wee bit elitist.
Good luck convincing any board of directors that their company should be first to offer less pay to the next CEO...
Well, I guess it beats YACA....but these aren't players we're talking about here. But to go with a sports analogy*, imagine if the coaches of the Patriots, Colts and Steelers were among the least paid in the league, but the coaches of perennially shitty teams like the Vikings or Browns were paid over $100 million a year.
*Switched to football as I follow baseball as much as water polo
A declining "brick and mortar" chain can't pay a CEO in stock options like Apple.
Didn't Steve Jobs have a salary of $1? Good luck getting someone to run a sinking ship like JC Penney for $1.
This is old news: Celebrity executives can't make a company better. So why are celebrities still sought and their failure still rewarded? This doesn't happen in any other administrative job.
The real question: Are experienced, not executives, but actual CEOs of well-performing companies 'promoted' to poor-performing companies? If so, does this have a happy ending?
Let's face it, the 'Peter principle' still applies; excellence in one job does not mean a similar job requires the same skills. Also, "there is no school for president", or CEO, outside of experience and maybe, an MBA. Knowing how a suite of products will sell does not mean an executive knows how to market an entire company. This seems truer in the ICT companies where the 'next big thing' causes large upheavals in market forces.
With studies like these, you must be careful to look at the start-end dates on the data. 2005 - 2014 seems strangely designed to centre around the couple of years of financial crisis. I wonder if the companies chosen for the study were also cherry picked.
The income of any position is derived from the power relationship between both sides. It has seldom something to do with performance.
Management will look at this study and conclude "this proves if you pay people too much, it impairs their performance".
They will then seek to apply this lesson to their entire (non-executive) workforce.
Starships were meant to fly, Hands up and touch the sky - Nicky Minaj
The whole bonus system is counter-productive for performance by its very nature. Think about it: most bonuses are tied to short term performance and goals on a quarterly or yearly basis. So by their very design they encourage the CEO to make whatever changes possible to meet that target, no matter what it does to the company 2 years or 5 years or 10 years down the line, because chances are he/she won't be in charge at that time.
These studies have been done numerous times in different countries with similar results and people and companies should start to wake up to this: if you don't want the guy to come in, fire 30 % of the staff to cut the costs for a temporary boost in profit that then backfires in a year, then don't explicitly make these types of deals that guide them towards such solutions. Change the timescale: pay bonuses retroactively if the company is doing better after 5 years, or in decade. The guy doesn't need to commit himself to work there for that long; if he knows he'll get a sum of money in 5 years if the company is still doing great then, he will be encouraged to make his decisions on that timescale, and not just think about the next 4 months.
"It is the business of the future to be dangerous" -Alfred North Whitehead
What if the worst performing companies seek to hire the best to reverse their fortunes? If the study doesn't control for this, its conclusion is wrong.
Well those under performing CEO's just need to donate to the the Clinton foundation. There is an absolute return on investment via government contracts.
The board controls CEO pay. If his pay is out of whack with what's going on in the company, look no further than the board of directors.
but the coaches of perennially shitty teams like the Vikings
Hey we don't pay the coaches more here we instead build them a new giant fucking stadium because the owner says he might move the team.
Time to offend someone
A well-run company will not over-pay its CEO.
If the company and board were making good decisions, the company would have better performance. Since they don't know better than to overpay for a resource even at the highest level, the company is going to have some problems.
This posting is provided 'AS IS' without warranty of any kind, implied or otherwise.
Well-paid CEO isn't responsible for reducing tax liability - that's the bean counters job.
Speaking as a certified bean-counter, it absolutely is a (small) part of the CEOs job. Everything that goes on in the company is the CEO's responsibility and I assure you that if the CEO isn't overseeing measures to minimize tax liability that the board of directors will (or should) notice because it directly affects profits. Since profits are the CEO's job, so are taxes. The bean counters are there to carry out the task (along with lawyers and auditors) but the responsibility definitely is a portion of the CEO's job. It's also the responsibility of other people as well since business is a team sport.
You could remove most CEOs, CIOs, CTOs, etc., and as long as nobody noticed, the company would be better off.
If you believe this then you have no idea what those jobs entail. Believe me there is plenty to criticize about how CEOs do their job and how their are compensated without idiotic sound bites.
Any Board of Directors that offers that good a great is by definition NOT looking out for the interests of the company.
Good managers do not overpay, bad managers do it all the time.
excitingthingstodo.blogspot.com
I would argue that a CEO should not have any stock incentive at all. A CEO is on the company side of the stock holder / company split. The board representing the stock holders. The CEO, management, and the rest of the employees representing the company as an entity.
CEOs need to motivate, find direction, find common cause and then drive the corporation towards that goal. Income and profit can not be the driving goals. Just as in personal life, if a person who simply tries to maximize his income, they will tend to grow very little. And even if moderately to wildly "successful" at growing their income, they will end up miserable having lost any flicker of real life in themselves long ago.
Look at the frenzy around Apple products. Yes, you can say it is idiotic but you can't deny that its there. To a very large degree, that came from Steve Jobs. This causes the employees to want to work for you, want to produce their best, and that is when a company can gain tremendous output from the individual employees.
Google appears to be the same. Inside, they LOVE being part of Google.
Fundamentally, people do not produce for money. They produce out of the love they have for what they are doing. Hiring CEOs who don't know this within their own heart and being is a recipe for dull, lifeless, greedy consumption -- not growth, prosperity, and economic freedom.
is a significant enough cost that it will lower the profit a company make and lower the price of the stock.
It's like how your mortgage rates are worse when your credit is bad; that is, when you can least afford it, because you already have credit problems, new credit becomes even more expensive.
Likewise, when your company is failing, if you want to retain your CEO or hire a new one, you have to pay them a lot of extra money, because running a failing company is a shitty job and most of these people could make enough money doing something more fun at another company.
They get the pay because they don't return the value, not because they do.
Also they get the pay because the board wants them to give money to the board, not value to the company or shareholders.
Also it is quite the cult of personality at a certain level. The dumb comes on strong and washes them all away.
Also - this is a useful metric for stock valuation of a company. If CEO is paid high in the bin, then investment is a higher risk.
600 billion over 10 years that's considered poorly run? Uh, I think that this study fails to understand the fundamental elements of running a company.
Large, established companies pay CEOs the most. Because they're already large and successful, it's much more difficult to grow. Lower paid CEOs typically work for smaller organizations that have much more room to grow.
Somewhat a fail argument because there isn't an accurate way to predict how a company would perform under the helm of a different CEO.
Move along from the obvious...
CEOs should be paid minimum wage + stock options, meaning if they don't increase shareholder value, they are the lowest paid people in the company. If you're promising to put money in shareholder's pockets, shouldn't you be willing to put your money where your mouth is? How much money did Marissa Mayer walk away with in exchange for her ineffective leadership of Yahoo? Whatever amount it was, it was way too much!
I've abandoned my search for truth; now I'm just looking for some useful delusions.
Yes, the statistics are misleading because it is much easier for a startup to double their market cap than for a long-established company in a mature industry to do so. IBM and HP have seen declining revenues every year for several years now... it doesn't mean they are badly run, it just means you can't continue to make 40% margins forever in the same industry. Amazon and Google avoid the mature technology trap by CONSTANTLY starting experimental new businesses, then liberally tossing out the ones that don't work out.
I've abandoned my search for truth; now I'm just looking for some useful delusions.
The bean counters would still do it without the CEO's direction, since it directly affects the company's ability to pay the employees (including said bean counters) salaries.
Company wide tax mitigation does not happen without C-suite executives being involved. Period. Virtually everything accountants do affects the financial statements and those are reviewed closely by the CEO and his direct reports if they care to keep their jobs. As such it does not happen without oversight with the head of the company leading that oversight.
And they would be under less pressure to do illegal tax dodges, since they would bear direct responsibility for those decisions instead of "just following orders.
Accountants DO bear direct responsibility for their actions and can (and occasionally do) go to jail for "illegal tax dodges". They are the first ones thrown under the bus if something shady is going on. Most tax dodges are 100% legal and there is a cottage industry in finding clever ways to legally reduce tax. The only ones who do it illegally are the ones who are too dumb to know better.
Hang the CEOs, watch the company do better as the people who actually know their jobs do them without outside interference.
If you want to see what a company looks like when you let the accounting and finance people do their jobs "without outside interference" I direct your attention to Enron. What you are proposing is a one way ticket to Fraudtown. A CEO who isn't keeping a close eye on the where the money goes in the company is not doing his/her job and should be fired.
Been happening since the 1980's.
This is nothing new, its just that mentally retarded people in management finally made the statement for the first time.
How does laying off 100 people save money when they can lay off all the C-level retards at any company and save 5x more money?
Is there a place we can go where there are no retards and no illegals?
Just somewhere quiet where people use common-sense and don't need leadership that lies and subverts?
Nope, thought not.
Maybe CEO dont want to work for crappy companies, so they get paid more to deal with the toxic politics?
Most Companies pay their CEOs with stock, which the CEO works hard to get its price way up, typically by cheating.
However, if they would pay their CEOs with none publicly traded stock, along with regular salary, then CEOs have a STRONG incentive to get decent dividends rather than focus on the stock price.
I prefer the "u" in honour as it seems to be missing these days.
That corporations HAVE to pay top dollar to "attract the best talent" and to "take us to the next level" and "synergize our core competencies" so as to "enable the circlejerk that corporate governance all too frequently is."
Here's a thought experiment. I'd never recommend this in real life. Cut all corporate CEO and C-Suite wages in half. See exactly how much corporate profitability is affected. Give it 1-3 years to get a good look. I'll bet the movement in profits is statistically insignificant and not linkable to the wage cut in 99.9% of the cases. You might lose a few individuals but "they left to spend more time with their family and the organization wishes them well in their future endeavors."
The highest-paid CEO's tend to be parasitic and suck value from the companies they head, taking money from employees and shareholders and moving it into their own pockets, then move on locust-like to the next victim. So of course their compensation is inversely proportional to the company's performance. These leeches are slowly poisoning their hosts. Is anybody truly surprised by this? It's rather tautological.
'He who has to break a thing to find out what it is, has left the path of wisdom.' -- Gandalf to Saruman
if the company is doing well, the CEO deserves a lot of money as a reward. if the company is doing badly, the CEO deserves a lot of money for having such a tough job.
Star Trek transporters are just 3d printers.
It's called https://en.m.wikipedia.org/wik...
Casteism
Why Social Mobility In The United States Is A Total Myth
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Casteism