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Businesses The Almighty Buck News Science Technology

Highest-Paid CEOs Run Worst-Performing Companies, Research Finds (independent.co.uk) 176

Posted by BeauHD from the more-money-more-problems dept.
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."
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Highest-Paid CEOs Run Worst-Performing Companies, Research Finds More

Highest-Paid CEOs Run Worst-Performing Companies, Research Finds

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  • even a GOOD team will pay. look at what the Cubs just did.

    • Re:a BAD sports team will pay for GOOD players (Score:4, Insightful)

      by bloodhawk ( 813939 ) on Tuesday July 26, 2016 @07:57PM (#52586537)

      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.

      • Re:a BAD sports team will pay for GOOD players (Score:5, Insightful)

        by tomhath ( 637240 ) on Tuesday July 26, 2016 @08:10PM (#52586581)

        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.

        • 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.

          • Re:a BAD sports team will pay for GOOD players (Score:5, Insightful)

            by cheesybagel ( 670288 ) on Tuesday July 26, 2016 @09:02PM (#52586797)

            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.

            • Re: (Score:3, Insightful)

              by Anonymous Coward

              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.

          • Re: (Score:3, Insightful)

            by ArmoredDragon ( 3450605 )

            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

            • Re:a BAD sports team will pay for GOOD players (Score:5, Insightful)

              by dbIII ( 701233 ) on Wednesday July 27, 2016 @02:13AM (#52587819)
              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.

              • Re: (Score:3)

                by tnk1 ( 899206 )

                Although he wasn't a CEO, Yahoo dropped $100+ million on Henrique de Castro for only like 15 months of work before they fired him. This was due to Marissa Mayer basically getting a call from him looking for the job, and her refusal to vet him when she decided he was just the thing Yahoo needed.

                I can totally believe that boards will have similar blinders on when it comes to vetting, even though they are supposed to have a search committee process to find the right CEO.

                That said, I do agree that we focus a l

            • The same argument is often made about lawyers, programmers, and a number of other jobs that pay a lot.

              You can't really lump six-figure programmers and lawyers in with eight-figure CEOs. There are plenty of CEOs in the six-figure range, but those aren't the salaries that raise eyebrows or questions.

              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.

              The argument from the executive suite has always been that an eight figure CEO earns his compensation in ways that are hard to quantify. This makes the salary itself a badge of competency. How do you know someone is a great CEO? They earn $10M/year. Anecdotes aside, this study suggests that high salary alone is

          • There is nothing at all about our financial system that i like. However in this case hiring the super expensive CEO may be out of an urgent need to repair a company that is not doing well. Or it could be out of ignorance. But how does one judge? A poorly performing company may be in a position in which growth or profit are simply unrealistic.

          • 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.

            If you don't like what a CEO is paid, don't buy shares in the company.

            If you don't own shares in the company, it's none of your business how much the owners (=shareholders) pay the CEO.

            • If you don't own shares in the company, it's none of your business how much the owners (=shareholders) pay the CEO.

              The shareholders don't pay the CEO. The company pays both the shareholders and the CEO. And the company - and for that matter the entire concept of ownership - is legal fiction created by Us The People. We have every right and duty to ensure our creations perform the purposes for which they were created, rather than run rampant or be perverted or looted by parasites.

              If a company also happens t

              • The shareholders don't pay the CEO. The company pays both the shareholders and the CEO

                The shareholders own the company. Every dollar that the company pays to the CEO is paid by every shareholder.

                And the company - and for that matter the entire concept of ownership - is legal fiction created by Us The People. We have every right and duty to ensure our creations perform the purposes for which they were created, rather than run rampant or be perverted or looted by parasites.

                A company is created by founders and

                • So you're claiming that companies that avoid their fair share of taxes are NOT everyone's business? What sort of libertarian fucktard are you?

                  • Re: (Score:2)

                    by dcw3 ( 649211 )

                    He didn't imply that illegal actions aren't our business. Could you possibly stretch the intention of his comment more? Also, you clearly have no concept of the actual meaning of libertarian, and a severe lack of civility calling names for no good reason.

                • Comment removed based on user account deletion
            • Those bad CEOs are the ones responsible for decisions such as the tax dodges that result in EVERYONE ELSE paying more than their fair share of taxes.

              We need a corporate "death penalty" to force shareholders to look at the underlying fundamentals of the business, including ethics.

              • Re: (Score:2)

                by dcw3 ( 649211 )

                Those bad CEOs are the ones responsible for decisions such as the tax dodges that result in EVERYONE ELSE paying more than their fair share of taxes.

                We need a corporate "death penalty" to force shareholders to look at the underlying fundamentals of the business, including ethics.

                Completely unreasonable. Do you have a 401k? Do you know all the companies that they invest in? Have you researched all of them? Or, do you have shares of the Dow, S&P, Wilshire, etc., indexes? Are you going to research all the members? No.

                All that said, we do need to penalize those responsible for corporate misdeeds. The fines that a couple Wall St. firms got from the housing bubble are barely a slap on the wrist, and some of the leaders needed to do stretches in jail. Until we see such penalti

                • Re: (Score:2)

                  by dcw3 ( 649211 )

                  Oh, and one more thing. How would you react when it's the company you work for that gets the "death penalty"? I work in a company that had over 100,000 employees. Are you willing to put all of them along with their families, and all of the suppliers and their businesses at risk? You'd likely have a significant impact on half a million people if someone at the top screwed up. It's basically the same reason that, as a conservative, I agreed with Obama bailing out the auto industry.

        • Marisa Meyer will end up getting paid ~$200,000 per day after all the buyout clauses, while having increased increasing the value of the company by ~$20 million per day.

          That kind of ROI is a work of genius.

        • 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.

          Yes, and the right thing happened as a result: those companies lost value, and the shareholders foolish enough to hold on to their shares lost value. That's the way markets are supposed to work: you make good decisions, you get richer; you make poor decisions, you lose money. And the primary poor decision you can make is owning the wrong shares.

    • Re: (Score:3, Insightful)

      by jellomizer ( 103300 )

      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 cra

      • Re: (Score:2)

        by AmiMoJo ( 196126 )

        The fallacy is that paying more gets you a better CEO. It really depends on your industry, for example Yahoo would have done better to get someone who understands their business and the internet in general.

        Most of the best CEOs are not professional CEOs, they are people who started out at the bottom and who continue to take a hands-on active role in the company's day-to-day operations. Steve Jobs and to some extent Tim Cook, Larry Page and Sergey Brin, or Carlos Ghosn. You don't attract people like that wit

      • I thought the point was that the pay was mostly incentive and that those payed a smaller incentives worked harder to get more which benefited the company more. What you are saying is that failing companies have to pay more because if they don't they can't employee people which may be a problem with more high profile people but not the point.

    • There could be a few other explanations as well. Big companies are more likely to be able to afford to pay higher salaries, but also may have the most difficulties growing the company's value as they either already control most of the addressable market and can't successfully branch into a new one or the market they dominate is in decline. For example, Tim Cook is paid exceptionally well, but they're largely tapped out in terms of growth. Some of their lines are declining, and others aren't seeing the same

    • Well, I guess it beats YACA....but these aren't players we're talking about here. But to go with a sports analogy*, imagine if the coaches of the Patriots, Colts and Steelers [usatoday.com] were among the least paid in the league, but the coaches of perennially shitty teams like the Vikings or Browns were paid over $100 million a year.

      *Switched to football as I follow baseball as much as water polo

      • but the coaches of perennially shitty teams like the Vikings

        Hey we don't pay the coaches more here we instead build them a new giant fucking stadium because the owner says he might move the team.

    • Re: (Score:2)

      by gweihir ( 88907 )

      And a BAD sports team will be BAD because of BAD players. Your point?

    • Re: (Score:2)

      by hey! ( 33014 )

      Or... badly companies are stupid about how they spend their money.

  • It's almost suggesting (Score:3)

    by Ukab the Great ( 87152 ) on Tuesday July 26, 2016 @08:01PM (#52586551)

    that the kinds of political machinations one has to do to become a highest paid CEO are antithetical to having a non-dysfunctionl great-performing team with a great product.

    • Or it suggests that a CEO's pay is merit based and that it requires more work to achieve smaller gains in saturated markets or with over sized companies. The metric used in the article is the problem here, it inevitably leads to a false conclusion.

      The problem with American companies isn't the compensation rate of the CEO's, that's a non-sequitur. It's that certain CEO's are allowed to cannibalize companies and still get compensated for it.

  • *Gasp* NO! (Score:5, Funny)

    by RyanFenton ( 230700 ) on Tuesday July 26, 2016 @08:04PM (#52586563)

    No - no, it could NOT be! Those zero-sum *whackos* got to Slashdot too! It's not true I tell you - everything is a positive sum game, where you more you reward the rich and *deserving*, the more resources just *exist* to better serve the sheer excellence of the intentions of those in the market!

    Entropy is a lie! Hope must win! If we only *trust* in the market enough, it WILL provide! Rational skepticism will only doom us all!

    And with enough sarcasm, I might *just* be able to express how little a surprise this but of news is!

    Ryan Fenton

  • Too big to grow? (Score:5, Insightful)

    by ClickOnThis ( 137803 ) on Tuesday July 26, 2016 @08:09PM (#52586577) Journal

    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.

  • Possibly it is pay for risk (Score:5, Insightful)

    by Hasaf ( 3744357 ) on Tuesday July 26, 2016 @08:10PM (#52586579)

    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.

    • There is a reason though it works. It is because humans are selfish and greedy. It is easier to find greedy smart people who will sell there own mother's than truly altruistic good people.

      Why did America rise do far? Because we let i dependant, selfish, and greedy people free and mostly separate government from them. Since you don't need to rule the land to be the most wealthy, greedy people can just be greedy.

      Kings use to be the wealthiest person in the land. if anyone else came close there was a war.

      • There is a reason though it works. It is because humans are selfish and greedy. It is easier to find greedy smart people who will sell there own mother's than truly altruistic good people.

        The problem with your theory is that it only identifies the greedy people. It doesn't identify the smart people.

      • Altruistic and good are mutually exclusive.

      • Kings use to be the wealthiest person in the land.

        Wrong. Henry V had to borrow money from Dick Whittington (yes, him with the cat). And he wasn't the only one.

    • Most mid level managers are busy doing their jobs, doing routine planning and handling unending crises. Corporate value is beyond their horizon. They aren't scheming and backstabbing and whatever else your ignorant dreams see them doing. There are the rare Machiavellians and show boaters, but they don't represent the bulk of mid level management.

    • Offer a high reward for succeeding for drastically increasing a company's business (or saving it), not for just.....showing up. For example, Marisa Mayer has a golden parachute for $50 odd million dollars. Maybe she would have worked a little harder at turning around Yahoo if she had to move in with Liz Homes [vanityfair.com] because she was going to out on her ass, like all the people she laid off?

      Combine that with the fact that working stiffs are supposed to work their asses off for as little as eight bucks an hour...so

    • Re:Possibly it is pay for risk (Score:5, Insightful)

      by Opportunist ( 166417 ) on Tuesday July 26, 2016 @11:53PM (#52587517)

      What risk? No matter what a dud the CEO is, if the company is really big enough it is "too big to fail" anyway and I get to prop it up with my tax money.

      Where the heck is that "risk" for the CEO? If everything fails, my tax money is also going to pay for his golden parachute.

    • 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 part of the story, but I think we need to take the reasoning a step further and realize that those who get promoted from mid-level management are those who show the most extreme positive results. The American business model these days no longer just demands "steady income" -- it demands "constant growth," preferably at as fast a rate as possible.

      This attitude implicitly encourages more extreme and more risky decisions to get ahead. The results are guaranteed to be more volatile, with some reapin

  • hahahaha not the best CEO.

    • Have you tried computing that ratio of compensation to value added for Marisa Mayer? Hist: it's somewhat better than 3.67

  • Sort of obvious because ... (Score:5, Insightful)

    by dbIII ( 701233 ) on Tuesday July 26, 2016 @08:26PM (#52586637)
    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).

  • No kidding (Score:5, Informative)

    by smooth wombat ( 796938 ) on Tuesday July 26, 2016 @08:28PM (#52586655) Journal
    Why do these people keep doing the same reports year after year? Every previous report has said the same thing.

    From 2009 [go.com]

    August, 2013 [billmoyers.com]

    August 2013 again [kansascity.com]

    September 2013 [go.com]

    June 2014 [thinkprogress.org]

    We don't need any more studies to state the obvious.

  • What is a CEO's job? (Score:5, Insightful)

    by nick_davison ( 217681 ) on Tuesday July 26, 2016 @09:09PM (#52586827)

    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!

  • Looking at their numbers, I note that:

    $100 will grow to $265 in 10 years with an annual interest rate of about 10%

    $100 will grow to $365 in 10 years with an annual interest rate of about 14%

    This seems *extremely* generous, given the market. And there were commentators in a previous Slashdot thread that stated "the age of 7% returns has long passed".

    If this study were accurate, the authors should have kept their results close to the vest, and begin investing in the market!

    Am I right to be sceptical here? Wha

  • As formulated, this only looks at companies that lasted ten years. That means they're already pretty far ahead of the game compared to the vast majority of businesses. Furthermore, it raises another question: which of these is more likely still be paying out anything in another ten years? Rapid growth often means chasing quarterly gains too hard.

  • Corporate Governance (Score:3)

    by RichPowers ( 998637 ) on Tuesday July 26, 2016 @09:31PM (#52586943)

    Public companies, like republics, end up with the leaders they deserve.

    I think the more interesting question is, "Why do boards of directors hire and overpay mediocre CEOs who actively destroy shareholder value?" And why do the shareholders elect board members who do this?

    A strong antidote is to a) pay board members minimal cash compensation for their duties and b) ensure board members have a significant portion of their net worth invested in the company they oversee. This rather simply aligns board members’ interests with that of other shareholders. Sitting on a board should not be a cushy job -- it should be a privilege to oversee the management team responsible for making you richer and richer. If enough board members own chunks of the company, then bring in "outsiders" for their perspectives, but always make sure the board collectively has enough skin in the game.

    With respect to compensation, I frequently see executive pay associated with bullshitty metrics that are not tied to owners’ total returns or increasing the enterprise’s per-share intrinsic value. When executives are compensated with stock, the cost to owners (share dilution) is frequently obfuscated in the financial reports, or considered income through the use of legal but creative accounting. (Adobe and others were notorious for this chicanery before the dot-com bubble imploded.)

    When I consider purchasing shares, I always look at "corporate governance," CEO attitude, and board composition as important qualitative indicators of quality. Frankly I’m shocked by the number of publicly traded enterprises that retain significant earnings, and then piss the money away on failed acquisitions, ostentatious headquarters or skyscrapers, or, in the case of Bethlehem Steel before the bottom fell out of the industry, three separate corporate golf courses -- one for management, middle management, and employees.

    This is one of the reasons I’m fond of dividends: I don’t trust many CEOs to smartly allocate capital to generate satisfactory rates of return. It takes a special sort of person to either sit on cash for extended periods until a truly outstanding opportunity presents itself, or just admit that the enterprise has exhausted sensible options for capital redeployment, so time to bust out the dividends and share repurchases.

    The topic of corporate governance seems to be in vogue at the moment. Just last week, several CEOs and asset management firms released an open letter advocating for public companies to adopt "commonsense" governance principles [1]. And the large asset management firms like Vanguard are starting to become more vocal about how the companies they own are managed, if this letter is any indication [2]. Vanguard and other "passive" asset management firms have enough weight (literally trillions of dollars under management) to force change, and boards know it.

    [1] https://corpgov.law.harvard.ed... [harvard.edu]
    [2] https://corpgov.law.harvard.ed... [harvard.edu]

  • Apparently he only paid himself about $4.3M last year for his part in the continued destruction of Sears and KMart [chicagotribune.com], I would have figured he would have screamed his way to higher compensation.

  • I'd guess it has more to do with shitty, bad-performing companies having to either pay a lot to get someone to run it, or to get someone good enough to try to save them.

  • With studies like these, you must be careful to look at the start-end dates on the data. 2005 - 2014 seems strangely designed to centre around the couple of years of financial crisis. I wonder if the companies chosen for the study were also cherry picked.

  • The income of any position is derived from the power relationship between both sides. It has seldom something to do with performance.

  • Management will look at this study and conclude "this proves if you pay people too much, it impairs their performance".

    They will then seek to apply this lesson to their entire (non-executive) workforce.

  • The whole bonus system is counter-productive for performance by its very nature. Think about it: most bonuses are tied to short term performance and goals on a quarterly or yearly basis. So by their very design they encourage the CEO to make whatever changes possible to meet that target, no matter what it does to the company 2 years or 5 years or 10 years down the line, because chances are he/she won't be in charge at that time.

    These studies have been done numerous times in different countries with similar

  • A well-run company will not over-pay its CEO.
  • If the company and board were making good decisions, the company would have better performance. Since they don't know better than to overpay for a resource even at the highest level, the company is going to have some problems.

  • Any Board of Directors that offers that good a great is by definition NOT looking out for the interests of the company.

    Good managers do not overpay, bad managers do it all the time.

  • It's like how your mortgage rates are worse when your credit is bad; that is, when you can least afford it, because you already have credit problems, new credit becomes even more expensive.

    Likewise, when your company is failing, if you want to retain your CEO or hire a new one, you have to pay them a lot of extra money, because running a failing company is a shitty job and most of these people could make enough money doing something more fun at another company.

  • Large, established companies pay CEOs the most. Because they're already large and successful, it's much more difficult to grow. Lower paid CEOs typically work for smaller organizations that have much more room to grow.

  • Move along from the obvious...

  • CEOs should be paid minimum wage + stock options, meaning if they don't increase shareholder value, they are the lowest paid people in the company. If you're promising to put money in shareholder's pockets, shouldn't you be willing to put your money where your mouth is? How much money did Marissa Mayer walk away with in exchange for her ineffective leadership of Yahoo? Whatever amount it was, it was way too much!

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