The More A Company Pays Its CEO, The Worse Its Shareholders Do

by Alan Pyke

The companies that pay their chief executives the most see the worst results for shareholders, according to a new study, with an average annual shareholder loss of $1.4 billion at the companies with the highest CEO pay.
Exorbitant CEO compensation packages breed overconfidence, study authors Michael Cooper, Huseyin Gulen, and Raghavendra Rau write, and overconfidence leads to bad decisions about weakened business performance. Contrary to the common claim that paying executives in stock will improve their management of a firm, the study finds that CEOs who are given non-cash incentive compensation actually perform worse. The negative effects of excess executive pay linger for three years and drag shareholder returns down by between 8 and 11 percent for companies with the most lavish CEO pay packages.
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