Steven Kaplan from Chicago’s Booth School of Business has released a research paper on CEO salary, titled, “Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges”.
Here are some myths on CEO pay that he busts. All data below is related to the CEOs of S&P 500 companies (not the economy overall).
Myth: CEO pay keeps rising
- In 2010 S&P 500 CEOs were paid about as much in real terms as they were in 1998.
- When CEOs are hired, their ‘estimated’ pay package is announced. They generally don’t end up earning the full amount.
- Top lawyers earn about as much as company CEOs.
- The top US 25 hedge-fund managers regularly earn more as a group than all the S&P 500 CEOs together.
- The ratio of CEO pay to firm market value has remained roughly constant since 1960.
Myth: CEO pay is not tied to performance
- Firms with CEOs in the highest 20% of realised pay generated stock returns 60% greater than those of other firms in their industries over the previous three years.
- Firms with CEOs in the bottom 20% underperform their industries by almost 20%.
- Companies are quicker to fire non-performing CEOs. Average CEO tenure fell from eight years in the 1990s to six years today.
Myth: Shareholders are ignored by boards in setting CEO pay
- Since ‘shareholder say-on-pay’ was introduced in 2011, 98% of CEO pay packages were approved by shareholders.
Image Credit – Flickr user Doug 88888