This may be a correlation-vs-causation effect. It's possible that companies that are in poor markets and likely to do poorly in the next few years have to pay more to attract qualified CEO candidates, because good executives realize the shit the company is in and don't want to take the risk of a failure on their resume without being compensated significantly for it.
This would also explain why the negative correlation is strongest at the extreme high ends of the pay scale - these are the companies that are in the worst shape - and why these CEOs relied heavily on acquisitions, because they had no talent or useful products in the organization itself. It also fits with Warren Buffett's observation that "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."
One way to confirm or deny this hypothesis would be to look at companies that previously were high-performing, and then see what the correlation between CEO pay and the change in market performance is within that group.
I thought of this as well, and I was bothered that the authors did not. (At least the author of the Forbes piece - I could not access the research paper.) The author of the Forbes piece immediately jumped into explaining the effect assuming causation, which I was not convinced has been established.
To be clear, I find it reasonable that there could be causation. But we still need evidence to support that conclusion.
>This may be a correlation-vs-causation effect. It's possible that companies that are in poor markets and likely to do poorly in the next few years have to pay more to attract qualified CEO candidates, because good executives realize the shit the company is in and don't want to take the risk of a failure on their resume without being compensated significantly for it.
I was also thinking that it could be the correlation vs causation effect, but I think it may have more to do with the fact that the highest paid CEOs are usually going to be found working at gigantic companies that are struggling to continue to grow.
I agree. It's unfortunate that whenever you see media coverage of a study like this, the safe assumption is bad interpretation of the data, bad data, small sample sizes and the like. It could also be true. We're such apes.
You feel like you need to interrogate them to see what they're missing or hiding. Is this just a product of pay in certain industries?
The article mentions poorly performing banks. Bank CEO markets are competitive. There are a lot of them. They move and they have options in government, think task and such. Banks also happen to be on a bad run. Tech OTOH is doing well. We're on a founder-CEO trend and most of them are rich of founder stack, not salaries. Stock is more common as a compensation. You're more likely to find $1 salaries in tech companies.
Could the story really be more about industries, their compensation norms and recent performance? Could it be about founders vs hired guns? Could your (sounds plausible) reasoning be true, bad companies need to pay CEOs higher salaries. I'm not claiming it is, just pointing out how unfortunate it is that we can't say "Forbes, University of Utah. They must have eliminated those. Their conclusion must be a likely one.
"How could this be? In a word, overconfidence. CEOs who get paid huge amounts tend to think less critically about their decisions." - really?
On second though, your reasoning must be correct. Stock based compensation is much more attractive in a company/industry that's making gains. Warren Buffet or Larry Ellison can be compensated by owning stock, options or similar. If a stock is flat, those kinds of incentive packages are worth less so it needs to be made up in salary.
People that are paid most to do a job that isn't repetitive manual labor have worst performance scores, time and time again.
So unless CEOs are paid to manually bolt things or throws ball into a hoop, they probably aren't doing well because, in part, they are given money.
Money introduces fear (i.e. fear that you won't make enough money or lose your position with lots of money) and that leads to tunnel vision.
People give more performance if you give them more autonomy, mastery and purpose.
Ok, so I do believe that CEO's are usually overpaid with regard to their performance. That being said, I am not convinced by the methodology used in the study, specifically the period used for measuring the performance: 3 years. It sounds like a lot of time, but actually, I would expect a truly great CEO to undertake projects with a 5 years or more horizon. There's this great interview of Bezos discussing the point of focusing on quarterly results vs long term. So an alternative explanation for the findings could be: the highest paid CEOs invest in 5-10 years projects, so their results after 3 years are below average.
Again, I repeat that even before reading the study, I intuitively agreed with their conclusion, but I'm not so sure about their argument to prove it
Normally I would agree with you, but the average tenure of a Fortune 500 CEO is less than 4 years. If you raise the bar for period of performance, you're filtering out the bozos who go away quickly.
The way I read it that if you're not a superstar, you're investing lots of time horse trading and kissing babies to get the big bucks. That time would probably be better spent doing work productive to the business.
Looking at the first 3 years seems almost doomed to failure. It seems to me that it's pretty likely that a new CEO is going to be taking a company in a direction at least slightly different.
That means cutting out some projects may have been just about to pay off, while at the same time embarking on new ventures that won't bear fruit for some time.
One might interpret these results to say, "the highest-paid CEOs are engaging in the most expensive change for their firms". It's only natural that significant change is both forgoing some income that would have been realized soon, and creating risks for what's in the short-to-medium term while they look to the horizon.
This is all to be expected, and doesn't necessarily say anything about the amount of value they create in the long term.
A couple issues. Poor CEO's probably don't last 5 years. I'd suspect a strong correlation to performance and CEO's "horizon". In that those CEO's focused on next years or next quarters numbers are likely to thave poor (longterm) performance. Superstars such as Bezos or Musk are probably anomalies and not useful in studying CEO performance in general.
I think this is the most interesting excerpt from the study:
"The level of incentive compensation is significantly negatively related to the forward ROA, while the level of cash compensation is positively related to the level of ROA.
Overall, we conclude that our results seem most consistent with the hypothesis that overconfident CEOs accept large amounts of incentive pay and consequently engage in value destroying activities that translate into future reductions in returns and firm performance. "
I wonder about that "overconfident" label, and it might be possible to tease various effects out of the data.
Consider two possibilities:
1) CEOs with large incentive pay are irrationally confident in the success of risky policies
2) CEOs with large incentive pay are behaving like economically rational agents... betting someone else's money.
That is, incentive pay is more like a free pass to a casino where your losses are made good but you keep some fraction of your winnings. Under those circumstances taking large risks may be the most rational thing to do, IF the cash component of the CEO's compensation is sufficient to keep them in caviar and summer homes while they gamble the firm's money away.
Small problem: the incentive compensation is mostly options, and the way that package is measured is based on the value of the options at that moment in time. Options with high valuations are effectively pay for past performance that is consequently now worth something.
I'm skeptical because it sounds like this effect should be tradeable, unless they're using some measure of shareholder returns which doesn't imply that you could short-sell high-paid-CEO equities and buy median-paid-CEO equities and get an excess return. In other words, it sounds like this study is postulating an exploitably inefficient market, unless this kind of data only recently became available. http://lesswrong.com/lw/yv/markets_are_antiinductive/
To be clear, I'm very willing to believe that the companies with the highest-paid CEOs have generally poor governance and will antiperform on some appropriate metric, like price-to-book. But that metric shouldn't be equity price changes because CEO pay is public info, people are already speculating about it as a negative sign, and the market should already be taking that into account and pricing such shares lower (meaning that the returns cost less, hence such stocks should return the market rate, albeit perhaps with greater volatility).
It doesn't matter that the effect is tradable. What matters is that there is no possible arbitrage i.e. a way to make money with a 100% probability. For example, would you enter a bet in which you have a 50% chance of loosing $1000 and a 50% chance of making $1001 if you can enter it only once a year?
There are many many observable patterns that contradict the efficient market hypothesis amongst which:
- historical option volatility is lower than implied vol - you can make money by writing options.
- sell in may and go away strategy - you can make money (and beat the index) by being long the SP500 only between october-may
- strong contango in the VIX futures market - you can make money by shorting a volatility ETN like VXX that rolls near-maturation future contracts.
- mean-reversion on the second day after an earnings release - you can make money by going short if the stock price rises after the earnings call or vice-versa
In the end, what matters is how much risk (volatility, max drawdown...) you're willing to take for superior returns. That is often summarized by the information ratio of your strategy which is equal to (return of your strat - return of the bechmark)/vol(difference in returns).
The treasurer of my nonprofit who worked the short book at a hedge fund for a bit, commented on using this effect in his analyses, although usually for him it was lavish compensation packages that don't count stock-based compensation.
I'd worry that the inclusion of stock-based compensation introduces a different sort of artefact (a time-bias). By the nature of our bubblicious economy, CEOs in general are going to enjoy abnormally high stock-based returns in the 3-year run up to a stock market crash.
I pretty much guarantee that if you ran the numbers with intent to profit off this phenomenon, you'd find that its predictive value is null. A commenter down below speculated that it sounds a lot like simple regression to the mean.
I'm really curious about the relationship of CEO compensation and employee satisfaction/morale in companies. I have lost count of the number of times I've heard about a CEO, COO or CFO getting 8 figure salaries while the rank and file employees had to forego their bonuses in a touch year. I cannot begin to imagine how devastating that knowledge is to employee morale.
The best I remember is that a Danish bank (I think it was "Nordea" or "Danske Bank", but I'm not sure and my search-karma seems to have gone for the day) had a CEO who got a huge bonus for meeting his goals in making a profit back in 2009 or 2010.
The way he did that, though, was to fire 30% of the staff (and branches) and living off the profit from the hard work those 30% did the previous years - the next years they had bigger and bigger deficits, because they couldn't keep living off previous years loans.
I went through it last year. Our company didn't make money so no bonuses for us while the CEO got a handsome package of some $25 million.
It's pretty terrible to go through. Even if you didn't think the CEO has done a terrible job (I officially have no comment on the matter), it was still terrible.
Is it possible that what we're seeing here is a reversion to the mean[1] - CEOs who do particularly well some years get large pay packages, and then when their performance reverts to the mean in subsequent years they end up overpaid relative to performance?
And Tournament Theory: compensation is often based not on proportionate productivity, but rank order, which may be easier to measure, and serves as probabilistic-motivation for other workers competing for the top spot.
You beat me to it. Another way to state it would be that having a richly-paid CEO is a lagging indicator; or the companies with the resources to have a trophy CEO are likely already topped out and running up against the law of large numbers. Imagine being Tim Cook, CEO of Apple: he ought to expect high pay for such a prestigious job (I haven't looked it up), but continuing to grow the stock price at past rates would be next to impossible.
I don't see how it can simultaneously be the case that:
Though Cooper concedes that there could be exceptions at
specific companies (the study didn’t measure individual
firms)
and
How could this be? In a word, overconfidence. CEOs who get
paid huge amounts tend to think less critically about their
decisions. “They ignore dis-confirming information and just
think that they’re right,” says Cooper.
If he didn't look at individual people, how can he speak to the psychology of the effect? Are we suggesting that overconfidence shows up statistically as differentiated from other poor performance? What is the statistical proxy being used here?
Thiel's idea is fine if you're a kid eating ramen and living with your parents, but it is completely wrong for people who already have experience, and/or have families to support. I actually lost an investment because the investor thought I should not pay myself at all while trying to build the business.
I haven't read the paper, just the article. It's possible some of these are directly addressed, but I would want to know more before any credibility is given to the conclusions.
Some alternative explanations:
- The 'lowest paid CEOs', per their definition, are typically the ones who have the most skin in the game. When you have many CEOs out there with only $1 compensation, and just stock (and not stock grants as the author mention), they will inevitably be on the bottom. Think Zuckerberg, Google, Apple w/ Jobs, etc. One would expect this highly underpaid group to outperform.
- The highest paid CEOs are often times the ones dealing with the most troubled companies. If you were a shareholder of Kodak in 2000 and saw that digital cameras were coming, would you want to pay for the best CEO possible to ensure you could harvest the most out of the company? Kodak would still underperform the market, but maybe they would have underperformed the market more with inferior management.
- This is a little technical, but with an experienced manager pulling in big dollars, it's more likely that this is a well established company and manager that are well understood by the market. This means that the risk premium demanded by investors would be smaller resulting in a higher stock price. This means that the stock has less to move. And on the other hand, more unproven companies with cheaper managers will have higher risk premia demanded by investors, resulting in lower stock price and therefore have more room to go up over time as some of the unknowns are answered.
Ideally we'd need include other variables such as market size and expected growth (P/E Ratio), CEO share ownership, ex-ante company distress, etc. into the analysis. Based on the described methodology, it doesn't sound like that was done.. but again, didn't read the paper itself.
The conflict-of-interest and self-dealing problems at the c-suite and board level are absolutely pervasive at this point.
I don't think much will change until investors finally throw in the towel on the capital gains lottery and start demanding dividends at the point of pitchforks.
A simpler, and effective, approach is if you don't like what a CEO is doing, don't invest in the company.
I recall years ago a CEO stating that he was adjusting the accounting to reflect numbers "that stock analysts were looking for." He underestimated the investors - they weren't fooled, the stock price tanked and he went out the door.
>>I don't think much will change until investors finally throw in the towel on the capital gains lottery and start demanding dividends at the point of pitchforks.
No public company should pay dividends in the current US tax regime. To do so is to leave money on the table.
I'm not happy that they led with Larry Ellison as an example. As a Founder-CEO, his perspective on the company is fundamentally different from the mercenary CEOs running companies they didn't found or haven't worked at for decades.
There's an interesting psychological phenomenon I've read about where if you offer someone a material reward in return for doing a job, it tends to make them enjoy the job less. In extreme cases, you can take something that a person really loves to do and make it feel like a burdensome chore for them, simply by saying, "I'll give you $X to do Y".
I wonder if this story could have something to do with that.
I think it has to do with intrinsic vs extrinsic motivation[1]. I'd be a lot happier if I didn't need to get paid for work- as soon as money is involved, my intrinsic drive/interest tends to evaporate and gets replaced with anxiety. I'm definitely a fan of basic income for that reason- the ability to create things\help people without having to be concerned about income so much. If additional income results from that, great! If not, oh well, there were likely still other benefits garnered from the experience.
I realize it is popular to hate CEOs nowadays, but the article sure seems to be stretching with its conclusions. It seems much simpler and more likely to simply conclude that companies pay CEOs more than usual and give them large non-cash incentives when the company is doing badly and they are trying to buy their way out of a problem. That explains the increased mergers as well.
The article merely scratches the surface. We can probably agree that corporations have certain structural flaws, but I doubt making a CEOs life more burdensome - who would take the job under a claw-back regime without some kind of financial protection? - will improve the picture.
One line of inspiration come from government - maybe a bicameral board - one for managing quarterlies, the other for longer horizons - might fix some issues.
Another might be to limit cronyism - boards seats given to CEO appointees, or limiting the number of board seats a person can hold.
People need to take the efficient market hypothesis seriously when using stock prices for things like this.
The announcement of a new CEO (or more realistically, the rumors preceding the announcement) already given the market a chance to adjust based on their expectations of the CEO. So what the study really shows is that highly paid CEOs tend to perform less well than the market would expect. This might be because they perform worse. It might also be because they perform better, but not by as large a margin as the market expected.
One thing that could improve performance: only let CEOs sell their stock gradually over a 5 year period after the exercise their options.
Too much risk for the CEO? He's the one with the most influence over future performance. If he's putting the company on a good long term footing and chooses a good successor, he'll do fine.
If we incent CEOs to think long term, its more likely they will. CEOs that are founders or that have huge investments in their company's stock already tend to think long term.
Poor performing companies make bad decisions. One of those decisions may be how much to pay a CEO. The causation arrow may be going the wrong direction.
[+] [-] nostrademons|11 years ago|reply
This would also explain why the negative correlation is strongest at the extreme high ends of the pay scale - these are the companies that are in the worst shape - and why these CEOs relied heavily on acquisitions, because they had no talent or useful products in the organization itself. It also fits with Warren Buffett's observation that "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."
One way to confirm or deny this hypothesis would be to look at companies that previously were high-performing, and then see what the correlation between CEO pay and the change in market performance is within that group.
[+] [-] scott_s|11 years ago|reply
To be clear, I find it reasonable that there could be causation. But we still need evidence to support that conclusion.
[+] [-] phaus|11 years ago|reply
I was also thinking that it could be the correlation vs causation effect, but I think it may have more to do with the fact that the highest paid CEOs are usually going to be found working at gigantic companies that are struggling to continue to grow.
[+] [-] netcan|11 years ago|reply
You feel like you need to interrogate them to see what they're missing or hiding. Is this just a product of pay in certain industries?
The article mentions poorly performing banks. Bank CEO markets are competitive. There are a lot of them. They move and they have options in government, think task and such. Banks also happen to be on a bad run. Tech OTOH is doing well. We're on a founder-CEO trend and most of them are rich of founder stack, not salaries. Stock is more common as a compensation. You're more likely to find $1 salaries in tech companies.
Could the story really be more about industries, their compensation norms and recent performance? Could it be about founders vs hired guns? Could your (sounds plausible) reasoning be true, bad companies need to pay CEOs higher salaries. I'm not claiming it is, just pointing out how unfortunate it is that we can't say "Forbes, University of Utah. They must have eliminated those. Their conclusion must be a likely one.
"How could this be? In a word, overconfidence. CEOs who get paid huge amounts tend to think less critically about their decisions." - really?
On second though, your reasoning must be correct. Stock based compensation is much more attractive in a company/industry that's making gains. Warren Buffet or Larry Ellison can be compensated by owning stock, options or similar. If a stock is flat, those kinds of incentive packages are worth less so it needs to be made up in salary.
[+] [-] Ygg2|11 years ago|reply
People that are paid most to do a job that isn't repetitive manual labor have worst performance scores, time and time again.
So unless CEOs are paid to manually bolt things or throws ball into a hoop, they probably aren't doing well because, in part, they are given money. Money introduces fear (i.e. fear that you won't make enough money or lose your position with lots of money) and that leads to tunnel vision.
People give more performance if you give them more autonomy, mastery and purpose.
https://www.youtube.com/watch?v=u6XAPnuFjJc
[+] [-] abraxasz|11 years ago|reply
Again, I repeat that even before reading the study, I intuitively agreed with their conclusion, but I'm not so sure about their argument to prove it
[+] [-] Spooky23|11 years ago|reply
The way I read it that if you're not a superstar, you're investing lots of time horse trading and kissing babies to get the big bucks. That time would probably be better spent doing work productive to the business.
[+] [-] CWuestefeld|11 years ago|reply
That means cutting out some projects may have been just about to pay off, while at the same time embarking on new ventures that won't bear fruit for some time.
One might interpret these results to say, "the highest-paid CEOs are engaging in the most expensive change for their firms". It's only natural that significant change is both forgoing some income that would have been realized soon, and creating risks for what's in the short-to-medium term while they look to the horizon.
This is all to be expected, and doesn't necessarily say anything about the amount of value they create in the long term.
[+] [-] njharman|11 years ago|reply
[+] [-] JacobJans|11 years ago|reply
"The level of incentive compensation is significantly negatively related to the forward ROA, while the level of cash compensation is positively related to the level of ROA.
Overall, we conclude that our results seem most consistent with the hypothesis that overconfident CEOs accept large amounts of incentive pay and consequently engage in value destroying activities that translate into future reductions in returns and firm performance. "
[+] [-] tjradcliffe|11 years ago|reply
Consider two possibilities:
1) CEOs with large incentive pay are irrationally confident in the success of risky policies
2) CEOs with large incentive pay are behaving like economically rational agents... betting someone else's money.
That is, incentive pay is more like a free pass to a casino where your losses are made good but you keep some fraction of your winnings. Under those circumstances taking large risks may be the most rational thing to do, IF the cash component of the CEO's compensation is sufficient to keep them in caviar and summer homes while they gamble the firm's money away.
[+] [-] cbsmith|11 years ago|reply
[+] [-] Eliezer|11 years ago|reply
To be clear, I'm very willing to believe that the companies with the highest-paid CEOs have generally poor governance and will antiperform on some appropriate metric, like price-to-book. But that metric shouldn't be equity price changes because CEO pay is public info, people are already speculating about it as a negative sign, and the market should already be taking that into account and pricing such shares lower (meaning that the returns cost less, hence such stocks should return the market rate, albeit perhaps with greater volatility).
[+] [-] ucha|11 years ago|reply
There are many many observable patterns that contradict the efficient market hypothesis amongst which:
- historical option volatility is lower than implied vol - you can make money by writing options.
- sell in may and go away strategy - you can make money (and beat the index) by being long the SP500 only between october-may
- strong contango in the VIX futures market - you can make money by shorting a volatility ETN like VXX that rolls near-maturation future contracts.
- mean-reversion on the second day after an earnings release - you can make money by going short if the stock price rises after the earnings call or vice-versa
In the end, what matters is how much risk (volatility, max drawdown...) you're willing to take for superior returns. That is often summarized by the information ratio of your strategy which is equal to (return of your strat - return of the bechmark)/vol(difference in returns).
[+] [-] dnautics|11 years ago|reply
I'd worry that the inclusion of stock-based compensation introduces a different sort of artefact (a time-bias). By the nature of our bubblicious economy, CEOs in general are going to enjoy abnormally high stock-based returns in the 3-year run up to a stock market crash.
[+] [-] mtdewcmu|11 years ago|reply
[+] [-] malandrew|11 years ago|reply
[+] [-] nyrina|11 years ago|reply
The way he did that, though, was to fire 30% of the staff (and branches) and living off the profit from the hard work those 30% did the previous years - the next years they had bigger and bigger deficits, because they couldn't keep living off previous years loans.
[+] [-] sirkneeland|11 years ago|reply
It's pretty terrible to go through. Even if you didn't think the CEO has done a terrible job (I officially have no comment on the matter), it was still terrible.
[+] [-] reversiontomean|11 years ago|reply
[1] Thinking, Fast and Slow by Daniel Kahneman
[+] [-] gojomo|11 years ago|reply
Also perhaps, Winner's Curse: those who've paid the most in a competitive process are most often those who overestimated the value received.
http://en.wikipedia.org/wiki/Winner%27s_curse
And Tournament Theory: compensation is often based not on proportionate productivity, but rank order, which may be easier to measure, and serves as probabilistic-motivation for other workers competing for the top spot.
http://en.wikipedia.org/wiki/Tournament_theory
[+] [-] mtdewcmu|11 years ago|reply
[+] [-] aetherson|11 years ago|reply
[+] [-] balls187|11 years ago|reply
http://techcrunch.com/2008/09/08/peter-thiel-best-predictor-...
[+] [-] sparkzilla|11 years ago|reply
[+] [-] digz|11 years ago|reply
Some alternative explanations:
- The 'lowest paid CEOs', per their definition, are typically the ones who have the most skin in the game. When you have many CEOs out there with only $1 compensation, and just stock (and not stock grants as the author mention), they will inevitably be on the bottom. Think Zuckerberg, Google, Apple w/ Jobs, etc. One would expect this highly underpaid group to outperform.
- The highest paid CEOs are often times the ones dealing with the most troubled companies. If you were a shareholder of Kodak in 2000 and saw that digital cameras were coming, would you want to pay for the best CEO possible to ensure you could harvest the most out of the company? Kodak would still underperform the market, but maybe they would have underperformed the market more with inferior management.
- This is a little technical, but with an experienced manager pulling in big dollars, it's more likely that this is a well established company and manager that are well understood by the market. This means that the risk premium demanded by investors would be smaller resulting in a higher stock price. This means that the stock has less to move. And on the other hand, more unproven companies with cheaper managers will have higher risk premia demanded by investors, resulting in lower stock price and therefore have more room to go up over time as some of the unknowns are answered.
Ideally we'd need include other variables such as market size and expected growth (P/E Ratio), CEO share ownership, ex-ante company distress, etc. into the analysis. Based on the described methodology, it doesn't sound like that was done.. but again, didn't read the paper itself.
[+] [-] carsongross|11 years ago|reply
I don't think much will change until investors finally throw in the towel on the capital gains lottery and start demanding dividends at the point of pitchforks.
[+] [-] WalterBright|11 years ago|reply
I recall years ago a CEO stating that he was adjusting the accounting to reflect numbers "that stock analysts were looking for." He underestimated the investors - they weren't fooled, the stock price tanked and he went out the door.
[+] [-] alexeisadeski3|11 years ago|reply
No public company should pay dividends in the current US tax regime. To do so is to leave money on the table.
[+] [-] beat|11 years ago|reply
[+] [-] bunderbunder|11 years ago|reply
I wonder if this story could have something to do with that.
[+] [-] GregBuchholz|11 years ago|reply
http://www.danpink.com/books/drive
[+] [-] epaladin|11 years ago|reply
[1]Self-Determination Theory: http://en.wikipedia.org/wiki/Self-determination_theory
[+] [-] njharman|11 years ago|reply
[+] [-] endlessvoid94|11 years ago|reply
One of the biggest regrets of failed first-time CEOs is that they didn't pay themselves enough.
[+] [-] _delirium|11 years ago|reply
[+] [-] dubcanada|11 years ago|reply
[+] [-] highace|11 years ago|reply
[+] [-] lnanek2|11 years ago|reply
[+] [-] squozzer|11 years ago|reply
One line of inspiration come from government - maybe a bicameral board - one for managing quarterlies, the other for longer horizons - might fix some issues.
Another might be to limit cronyism - boards seats given to CEO appointees, or limiting the number of board seats a person can hold.
[+] [-] QuantumChaos|11 years ago|reply
The announcement of a new CEO (or more realistically, the rumors preceding the announcement) already given the market a chance to adjust based on their expectations of the CEO. So what the study really shows is that highly paid CEOs tend to perform less well than the market would expect. This might be because they perform worse. It might also be because they perform better, but not by as large a margin as the market expected.
[+] [-] stretchwithme|11 years ago|reply
Too much risk for the CEO? He's the one with the most influence over future performance. If he's putting the company on a good long term footing and chooses a good successor, he'll do fine.
If we incent CEOs to think long term, its more likely they will. CEOs that are founders or that have huge investments in their company's stock already tend to think long term.
[+] [-] njx|11 years ago|reply
[+] [-] pistle|11 years ago|reply