Today, Huffington Post ran an article showing that
High CEO Pay May Correlate With Lower Long-Term Stock Value.
This corresponds to an article I wrote nearly a year ago showing roughly the same thing:
High pay equals low performance.
No one is talking about this - certainly not the CEOs! But there is actually evidence that, in most cases, CEOs that are paid above industry averages do a WORSE job of running their companies. Think Bob Nardelli or Dick Fuld. These guys ran their companies into the ground and were paid hundreds of millions to do it. Warren Buffet, for all his vast wealth, actually makes only a modest salary, by CEO standards, and lives relatively modestly in the same house he bought 50 years ago (most of his wealth will be going to the Gates' foundation, as will Bill Gates' - another ex-CEO who drew relatively little in salary). It turns out that people who want to collect a lot of money up front are really in it for the short term, and are often willing, or at least unable to prevent, having their companies soar, then crash and burn, instead of planning for a long term future.
The idea that we have to pay gargantuan salaries, bonuses etc. to get better performance is not only a myth, it is actually counter-factual.
So, when a John Thain or some
similarly overpaid CEO complains that lowering salaries to a "mere"
$500,000 a year would discourage talent, you can say it would actually
encourage it, or more prosaically, "Don't let the door hit you on the
way out." Or, take them up on their offer, as I did here:
My Personal Offer to the Financial Robbers: Prepaid BanishmentHere are some links that back up the fact that we are over-paying for under-performance. As citizens and shareholders, we deserve better.
I hope one of the study's metrics - CEO Pay Slice (CPS) - will become a standard part of every investor report, but I wouldn't hold my breath.
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