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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.
^this, while many are way over paid and underperform companies with problems or in decline pay very large salaries to try and attract quality to fix the problem. The obvious recent example being Yahoo, though she failed to fix the problem and may have made it worse her salary was an attempt to buy in talent to turn the company around.
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.
The obvious recent example being Yahoo, though she failed to fix the problem and may have made it worse her salary was an attempt to buy in talent to turn the company around.
I suspect Yahoo (and HP) are examples of dysfunctional boards who thought they can help by hiring a rock start CEO, but had no idea where to find or recognize one.
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).
They're just boards who play the board member game, hiring expensive talent so that they in turn can be seen as worth it since they've succeeded in hiring expensive talent. CEO compensation needs to be cut drastically, because more money on the table just attracts the people who are good at taking more money OFF the table and into their pockets.
"Transparent" is a shit show that trades on every stereotype going. A man in drag is NOT a transsexual.
Quite often CEOs in one company are board members in another company. That's the best explanation for stupid high CEO salaries.
What gets around goes around.
A person who is poor will pay a higher interest than someone who is rich.
Why because the poor person has a higher risk of not paying.
A CEO going to a failing company will ask for more money just to account for that job may be a career ending job.
Now this isn't really fair as it causes extra suffering on the poor and marginal benefits to the rich. But the mortgage crash in 2008 shows giving out cheap loans to high risk individual will cause a larger failure.
So if a failing company buys a cheap CEO it may crash much more rapidly.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
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!
Quite often CEOs in one company are board members in another company. That's the best explanation for stupid high CEO salaries.
What gets around goes around.
Another example of the adage: Absolute power attracts corruptible people.
CEO compensation needs to be cut drastically
The same argument is often made about lawyers, programmers, and a number of other jobs that pay a lot. The thing is though, people ultimately get paid what somebody else thinks they're worth, usually in order to retain them as employees to prevent them from going elsewhere. As somebody who is getting paid a bit more than other people my same career field with the same amount of experience, I have to say that I wouldn't like to have other people gawking at my paycheck either. (And to be honest, getting in my current job wasn't easy; the screening process was one of those panel interviews where I got grilled on my technical knowledge by 5 people, and I had to do it twice.)
That said, in the case of these particular CEOs, it wouldn't be surprising to me if the companies were already sinking and they're hoping that some AAA talent can turn them around. Sometimes said talent does exactly that. Case in point, look at John Legere; the guy makes about $23 million a year, making him the 45th highest paying CEO. Considering that T-Mobile was on its 11th consecutive quarter of subscriber losses before he arrived, and is now by far the fastest growing carrier and the only carrier to see positive postpaid customer growth for 9 consecutive quarters, I think the guy has earned every penny of that. (Especially the way he became both CEO and spokesperson, a somewhat rare thing, you can't argue with his results.) In spite of that, T-Mobile would still land on the list of one of those lower performing companies. Why? Because it's going to take some time for those subscriber gains to pay off. Nonetheless, he has put the company into a really good position for long-term earnings.
Pay your best workers? You nuts? If you want to pump your stock, you gotta fire your best workers.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
With the greatest possible respect, the sort of failing CEOs we are discussing do not go through a screening process remotely similar to yours in any way so your experience and the salary you are proud of is not relevant at all.
If you were utter crap at your job and did some deals with some board members to get employed elsewhere with close to zero screening it would be relevant. You are not an Elop, going from a nobody, to a CEO of a huge company, to a top level exec at MS, to a nobody in an Australian Telco. Your employment depends on your competence and experience and does not shuffle up and down compared with what backdoor deals you've done and what friends you have.