High Pay = High Performance? Think Again

One study examined the performance of CEOs after receiving awards, such as CEO of the year or top manager, from the press (e.g., Business Week). In the year of the awards, the total compensation of superstar CEO winners increased by 44 percent; however, the compensation of all nonwinners showed little increase. This also applied to the nonwinners who were most similar to winners based on individual and firm characteristics; their compensation closely approximated what the superstar CEOs would have received had they not been given the awards. Three years following the awards, the difference in total compensation between the superstars and similar CEOs remained substantial. However, in the three-year period after the awards, the stocks of firms led by superstar CEOs underperformed those led by similar CEOs by 15 to 26 percent (Malmendier and Tate 2009).

Jacquart and Armstrong, 2013

Advertisements

2 thoughts on “High Pay = High Performance? Think Again

  1. Reblogged this on Executive Leadership Systems and commented:
    The relationship between Pay and Performance for CEOs is no different than it is for anyone functioning above the levels of survival and security in the Hierarchy of Need. As someone said to me once, “At some point, income just becomes about buying a more expensive pair of jeans.” What she meant was that at some point, you have enough income to meet your needs and then you are working for something else, even if you think it is still about money. I once had a wealthy Board member say to me that money was just the yardstick by which he measured his successes and failures in the business games he played. He could buy the most expensive jeans out there. Money for him was a commodity of measurement. CEOs are, like most people, likely to work harder when they think they still have something to prove, to themselves or to someone else. In most cases, they are working for something other than money. Money is the yardstick. There is one other reason that money matters. It is for many CEOs I know a measure of respect. There is a CEO marketplace and it has a set of ranges in compensation. If your Board places you in a range or commits to moving you up within a range or into another range, it expresses the respect they have for you. When a CEO is told by his or her Board that a requested level of compensation is not possible, that CEO knows he or she has lost value. It is their time to develop an exit strategy. Thanks, Dr. Ed

  2. The relationship between Pay and Performance for CEOs is no different than it is for anyone functioning above the levels of survival and security in the Hierarchy of Need. As someone said to me once, “At some point, income just becomes about buying a more expensive pair of jeans.” What she meant was that at some point, you have enough income to meet your needs and then you are working for something else, even if you think it is still about money. I once had a wealthy Board member say to me that money was just the yardstick by which he measured his successes and failures in the business games he played. He could buy the most expensive jeans out there. Money for him was a commodity of measurement. CEOs are, like most people, likely to work harder when they think they still have something to prove, to themselves or to someone else. In most cases, they are working for something other than money. Money is the yardstick. There is one other reason that money matters. It is for many CEOs I know a measure of respect. There is a CEO marketplace and it has a set of ranges in compensation. If your Board places you in a range or commits to moving you up within a range or into another range, it expresses the respect they have for you. When a CEO is told by his or her Board that a requested level of compensation is not possible, that CEO knows he or she has lost value. It is their time to develop an exit strategy. Thanks, Dr. Ed

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s