The Internet at the Speed of Thought

Study Shows That America’s Highest-Paid CEOs Run the Worst-Performing Companies

at 2:11 pm | By

The Fight Against High CEO Salaries

What’s your office like? Do you work for a startup or a mega-corporation? Depending on your industry and office culture, you may feel like work is your second home, or otherwise just the place you spend your dreary 9—5 (or longer) weekdays. So much of this has to do with office leadership.

Today, many companies strive for a more horizontal structure instead of a convoluted or vertical chain of command. Moving towards more openness and equality also leads to more accountability so that people take responsibility for their errors and successes, helping everybody improve along the way.

Keeping bosses, managers, and executives in open, constant communication invaluably changes the atmosphere of a given company. Accessibility to people at the executive level, even from lower-level and new employees, dramatically helps make all workers feel like significant members of the community. Instead of small employees working for a big boss, this openness makes everyone feel as though they are working towards the same goals, as well they should.

In fact, there’s more research today about how antiquated systems run by detached CEOs are failing, and the proof is all in not only how involved they are, but in how much money they’re making.

ceo salary ceo holding pyramid

Credit: Jirsak/Shutterstock

Is this correlation or mere coincidence?

The Study

ceo salaries payment vs performance

Source: MSCI

Recently, the corporate research firm MSCI set out to analyze the effectiveness of monetary incentives among CEOs in order to determine whether they were fairly paid for performance.

Headed by researchers Ric Marshall and Linda-Eling Lee, the study focused specifically on CEO salary and company stock performance to understand the relationship between these two factors and the shareholder return. Discrepancy between these numbers, the study states, could be due to a “misalignment of interests between CEOs and shareholders,” which could call the entirety of equity-based incentive pay for executives into question.

As it turns out, CEOs probably won’t be happy with the results.

The Popularity of Equity Incentive

ceo salaries shareholder returns

Source: MSCI

The report points out that “Equity incentive awards now comprise 70 per cent or more of total summary CEO pay in the United States.”

Incentive plans have pros and cons, but in theory reward the executives for the company’s performance, which a good CEO should be improving all the time. Of course, companies bring in new leadership all the time when trying to reach their maximum potential or merely to stay afloat, and half the struggle is enticing an accomplished executive to join your company in the first place. Needless to say, a lot of money is put behind this search and eventual salary and benefits package.

But is it working?