Highest-paid CEOs run worst-performing companies

Discussion in 'Business & Economics' started by Plazma Inferno!, Jul 27, 2016.

  1. Plazma Inferno! Ding Ding Ding Ding Administrator

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    The highest-paid CEOs tend to run some of the worst-performing companies, according to new research.
    The study, carried out by corporate research firm MSCI, found that for every $100 (£76) invested in companies with the highest-paid CEOs would have grown to $265 (£202) over 10 years.
    But the same amount invested in the companies with the lowest-paid CEOs would have grown to $367 (£279) over a decade.
    Titled Are CEOs paid for performance? Evaluating the Effectiveness of Equity Incentives, the report looked at the salaries of 800 CEOs at 429 large and medium-sized US companies between 2005 and 2014 and compared it with the total shareholder return of the companies.
    The report notes that equity incentive awards now comprise 70% or more of total summary CEO pay in the United States, based on our calculations. Yet they found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance.
    In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns.

    http://www.independent.co.uk/news/w...t-performing-companies-research-a7156486.html
     
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  3. Russ_Watters Not a Trump supporter... Valued Senior Member

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    Awesome; Someone who apparently has no idea why people get paid to work or just has a political axe to grind a writes a bad/meaningless study about CEO pay. Gotta love how our economic ideas are getting manipulated by people with agendas. So much for "social sciences" being, you know, sciences.

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    Last edited: Jul 27, 2016
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  5. iceaura Valued Senior Member

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    If they are getting paid to work, why isn't better pay getting better work out of them?
     
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  7. sculptor Valued Senior Member

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    interlocking directorates?
     
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  8. billvon Valued Senior Member

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    Because most people at that level do the best they can no matter what they are getting paid. Doubling a poor performer's pay will not double his performance.
     
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  9. Russ_Watters Not a Trump supporter... Valued Senior Member

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    Who says it isn't?
     
  10. Ivan Seeking Registered Senior Member

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    So post a study that supports your wacky claims.

    Or do you just blow off any study you don't like?
     
  11. iceaura Valued Senior Member

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    So they aren't getting paid better as a reward for better results in the past, or as an incentive to work better in the future, either.

    Why are they getting paid better, then, would be the question.
    Billvon, in the post you "liked". Sculptor implied the same, in the post you "liked". And it's clearly a possible explanation of the compensation/return comparison, which for some reason you regard as uninformative.
    That would explain both the high pay and the low corporate performance - bad management structure and perverse incentives are bound to do damage to the corporation as a whole.
     
  12. Russ_Watters Not a Trump supporter... Valued Senior Member

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    What [wacky] claims? Here's the specific problems: the study doesn't show what it claims to show and it is based on false premises about what does/should determine CEO pay. Also, even the uncontrolled data that they do give shows that the effect they measure is tiny compared with the distribution of incomes: essentially, they drew a slightly sloped trend line through a giant irregular cloud.

    I don't need different studies to show that this one has flaws. There is nothing I'm claiming to compare it to.

    This article and your response are just reflections of mindless "CEOs get paid too much!" blather.
     
    Last edited: Jul 27, 2016
  13. Russ_Watters Not a Trump supporter... Valued Senior Member

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    No they didn't. You're reading into their posts things that aren't there.

    This issue is simple: the cost of anything in a market economy, including a CEO, is driven primarily by supply and demand. Supply and demand are not necessarily tied to anything tangible but even when they are, there are significant non-tangible factors that ALWAYS play a role. ESPECIALLY, when dealing with such a rare and valuable commodity as a CEO.

    For example, one should consider the obvious reality that it is easier to be a CEO of a successful company than an unsuccessful one and CEO pay should reflect that. To put it simply: if you are trying to hire a captain of a sinking ship, you're going to have to pay him for the added risk that he might go down with it.

    Case in point: Marissa Mayer.
     
    Last edited: Jul 27, 2016
  14. iceaura Valued Senior Member

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    ? Where are you getting these "claims" and "premises"?
    Yes, they did (they both offered explanations of why better pay wasn't getting better work out of CEOs).
    According to that, CEO compensation is not determined by a market, and not part of a "market economy".

    Because there is, presumably, higher market supply and lower market demand for lower performing CEOs, but we see higher pay for them.
    They sure as hell aren't rare. How valuable the lousy ones are is apparently an interesting question.

    I can list off hand dozens of CEOs whose tenure was disastrous, featuring dramatically bad CEO performance. The company would have been better off paying them to do nothing. Sometimes, the entire country would have been better off. Carly Fiorina, Michael Eisner, Kenneth Lay, Angelo Mozilo - I'm picking from disparate industries - these people made far better than average CEO money, and the companies paying them would have been better off making their CEO level decisions via Magic Eight Ball. Supply and demand is obviously not operating in these situations.
     
  15. billvon Valued Senior Member

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    Correct. They are getting paid for current performance. They are (indirectly) profiting from their own performance because often incentives take the form of stock. Company does well? Stock goes up; they get more money.
    Because the company values them. However, if a given company wants to pay their CEO's less, I fully support their freedom to do so.
     
  16. iceaura Valued Senior Member

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    Which is apparently subpar, in contrast with their pay. Hence the issue.
    So they aren't even able to raise their performance to average when it would pay them to do so.

    Or is there a problem with using the profitable fluctuations in stock price behavior as a performance incentive?
    The "company" like who, exactly? And why?

    Who is it that values subpar performance over superlative performance, and pays it more money?
     
  17. billvon Valued Senior Member

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    Some CEO's performances are subpar, some are average, some are exceptional - like every other employee out there.
    Some can, some can't.
    Specifically the owner of the company. (Or in a publicly held company, the board of directors, which represent the stockholders - who are the real owners.)
    Some owners put value on things other than year-to-date performance. Their company, their money, their decision.
     
  18. iceaura Valued Senior Member

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    Sure. But that doesn't explain why the the subpar ones are getting paid more than the better performers.
    The higher paid ones can't, on average - as the study shows. The lower paid ones do better. Doesn't that strike you as odd?
    Ok, those are the people who value subpar performance higher than superlative performance. So why do they do that?
    The survey covered far more than "year to date" performance.

    But setting that aside, the question remains: what "other" things? Clearly performance is negatively correlated with compensation - what is it that is being valued more than performance? What is positively correlated, at least?
     

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