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The More You Pay a CEO, the Worse He Does at His Job

The More You Pay a CEO, the Worse He Does at His Job

Why do CEOs get paid fat bonuses on top of multi-million dollar salaries? Listen to a Wall Street insider and he’ll tell you that you have to pay “talent” the big bucks to get them to do a good job. On the contrary, new research out of the University of Utah demonstrates that the companies that pay their head executives the most actually perform more poorly, reports Forbes.

The data showed that companies in the top 10% for executive compensation produced 10% smaller returns for their investors over the following three years. The difference is even more pronounced if you look at the even more elite CEOs. Companies led by the top 5% of earners secured 15% less for shareholders than their industry peers, on average.

That conclusion partially makes sense. There must be a point somewhere between a $2 million paycheck and a $30 million paycheck where the money is so obscenely large anyway that it has little influence on the job performance. For that reason, it wouldn’t surprise me at all to discover that highly paid CEOs did equally as well as their lesser paid peers. However, the fact that the highest paid CEOs were actually leading the least successful businesses of the bunch – that would indicate that there’s more at play.

“[The highest paid CEOs] ignore disconfirming information and just think that they’re right,” said Michael Cooper, a lead author on the study. “That tends to result in over-investing — investing too much and investing in bad projects that don’t yield positive returns for investors.”

Certainly, it doesn’t help that these CEOs generally already have enough personal wealth that they don’t actually have to work another day in their life. Keeping their jobs isn’t critical for them. Furthermore, the knowledge that their colleagues get paid insane amounts regardless of their performances and that there are golden parachutes in the wings allows them to worry less about the outcome of their own decisions.

Since the study examined CEOs over the period of two decades, researchers were also able to look at the effects of retaining an underperforming but overpaid CEO. The longer they were in their position, the more control they had to continue making unprofitable decisions.

How could large financial companies reverse this misfortune (supposing you felt bad for them in the first place)? For starters, businesses could link executive pay more closely with performance, including only awarding bonuses when merited rather than as an automatic gesture. Regardless of how it’s handled, the solution obviously isn’t just to pay someone else more in the hopes that they’ll do a better job.

In fact, it might be time for large companies to reconsider paying executives that much altogether. If it doesn’t yield results, what is the point anyway? There’s got to be a better reason than simply spreading the class divide.

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8:49PM PDT on Jul 13, 2014

@Keith

it is David F one of Care2's internet trolls. He is one of those dark tetrad internet trolls who is very malignantly narcissistic and as a Texas white man is finding it very difficult that the president of the US is a black man.

So he wanders around from thread to thread, with his John Bircher/Fox News hose spraying his republitard nausea and vomit no matter what the article is about all over the place. He, and Bill (w)R(ong), and PlauB do this all the time.

There's no attempt at discussion or debate, he just enjoys interrupting the party, like some spoiled brat.

Your basic internet sociopath.

8:38PM PDT on Jul 13, 2014

I'm late to this conversation but find it difficult to understand how an article that argued to highly paid CEOs led underperforming corporations has segued into a discussion of the qualities of a (relatively) lowly paid President.

7:13AM PDT on Jul 13, 2014

Of course these same corporations refuse to pay their workers a living wage....go figure?

7:12AM PDT on Jul 13, 2014

Wow, David F., you mean that President Obama has been unable to "unite" the people who hate him with every breath, call him a "communist," "Muslim," "atheist," "Kenyan," "tratoir," who supposedly murders American citizens while attempting to destroy America?

You mean he hasn't been able to "unite" all of the rabid hatemongers like you, who would do anything, tell any lie, take any action to see him fail?

For five years President Obama has tried to reach out and work with Republicans on issue after issue and in response they have reviled him, lied about him, despised him with fox news and the right wing lie and propaganda machine (and of course, people like you) leading the way.

9:34PM PDT on Jul 12, 2014

Yeah yeah MOre talking points from Fox. You idiots jsut keep fighting the ACA A REPUBLICAN plan btw…….and we will sjut be forced to go single payer. THEN Businesses will finally be out from under the yoke of health care costs. THATS why he tried for that FIRST!!!

Your talking points are empty David…..Like they always are.

7:53PM PDT on Jul 12, 2014

Great video BoZo, even with a liberal interviewer, this lady states:

Quote: "Obama promised to unite the country, he had an amazing opportunity as the first black president to bring this country together and has failed miserably. so much hate, so much division, and it's sad, really, really sad that he blew this opportunity." unquote. So true.J

7:14PM PDT on Jul 12, 2014

Giggles says: YOU IGNORANT NIMROD!!! More and more and more people have to work 2 frikking jobs. Very true, your Highness just mandated millions of the disadvantaged to a 29 hour work week. thanks to the support of Obamacare from the Dimwits.

Now due to Con mans illegal executive order, they will either need to take two jobs or get more Obama entitlements when the Corp exemptions expire next year.

Small businesses with 50-99 full-time equivalent employees (FTE) will need to start insuring workers by 2016. or go part time. Those with a 100 or more will need to start providing health benefits to at least 70% of their FTE by 2015 and 95% by 2016.

7:08PM PDT on Jul 12, 2014

noted

5:39PM PDT on Jul 12, 2014

EXACTLY Michael. Well said.

2:09PM PDT on Jul 12, 2014

So true Robert, It is tragic and goes beyond even simply hating Obama because they've been told to.

A careful examination of the thought processes in evidence is also rather frightening.

These people feel the way they do because they have been told to, and divided against anyone else they are told to be against. Fox news, the pretense of fair and balanced reporting, the daytime angry hate radio programs are programming these people to think and behave like this.

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