High Executive Compensation

One argument for high executive compensation is that firms must compete for the best managers by offering higher pay. This assumes firms use validated selection procedures. However, human resources (HR) practitioners hold fallacious views regarding personnel selection. For example, intelligence is the single best predictor of job performance (Schmidt and Hunter 1998), yet only 18 percent of the 959 HR professionals surveyed by Rynes et al. (2002) identified intelligence as a better predictor of job performance than conscientiousness. Similarly, when personnel experts in New Zealand and the United States were asked to rank the strength of job-performance predictors, the correlation between the experts’ rankings and the evidence-based rankings was close to zero (Ahlburg 1992, Dakin and Armstrong 1989)

Jacquart and Armstrong, 2013

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