The More a CEO is Paid, the Worse the Company Performs
The compensation of a company's CEO rarely makes the headlines for the right reasons. Frequently, it's to highlight how absurdly wealthy company executives are compared to their actual workers. For many years, this has been a very prevalent theme in the media. But the question of whether they are worthwhile receives less attention. If a business is doing exceptionally well, surely the CEO did something to earn that cash? Maybe? The exact opposite, however, has been demonstrated by at least one study. Long-term performance of the company appears to worsen as CEO compensation increases.
Whatever the CEO's salary, there is undeniable proof that, over the course of the next three years, the company will do worse in terms of stock and accounting performance. Over a three-year period, the study examined more than 1,500 significant businesses to obtain data supporting the allegation. According on CEO salary, the top 5% of companies outperformed their peers by 15%.
A second study examined 800 CEOs from 400 mid-sized to large US businesses. From 2006 to 2015, they compared CEO compensation to shareholder return. The same outcome was found. In 10 years, $100 would have earned $265 if it had been invested in the 20% of businesses with the highest-paid CEOs. However, they would have earned $367 if they had chosen the CEO businesses with the lowest salaries. Even though the difference isn't significant, it raises the question of why the decision-makers are paid such a large wage.
