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Is There a Relationship Between High CEO Pay and Corporate Effectiveness?

5 points by gnicholas 4y ago

gnicholas 4y ago
TLDR: > The pattern that emerged was clear and consistent: The higher the pay ratio, the higher the average scores in our rankings. This was true for overall effectiveness, as well as for every one of the five areas we gauge… The results surprised us. Our expectation had been that, if anything, companies with the highest pay ratios would fare worse in our rankings—not better—because too big a discrepancy would make it difficult to nurture the kind of teamwork and trust that businesses need to succeed… A key reason, we suspect, is that the majority of CEO pay comes in the form of stock and stock options, and the most effectively managed companies in our rankings have, by and large, watched their shares perform very well in recent years, easily outpacing the benchmark Dow Jones U.S. Total Stock Market Index.
- isitmadeofglass 4y ago
  > A key reason, we suspect, is that the majority of CEO pay comes in the form of stock and stock options… So the argument is that if every company hired an Otter as CEO. We would see the same relationship that the more effective companies would have higher paid Otters, since it’s not due to higher pay letting them attract a better chief operating Otter capable of making the company more effective, it’s just showing that higher effectiveness yields higher pay because pay is directly tied to effective even if any Otter hired by the company would be equally irrelevant to the company effectiveness?
- shawabawa3 4y ago
  Sounds like they chose to use actual pay adjusted for stock appreciation instead of notional value of the pay packet at the time it was given, which seems really dumb to the point the whole study is useless
  - gnicholas 4y ago
    I've only ever heard people complain about "CEO X made $Z million last year, which is 40x the average employee pay". These complaints reference the total comp package, IIRC. To the extent that this is what people are talking about, a study that looks at this larger figure seems useful. It would be good to cut things up more ways, if it gives different results.
gnicholas 4y ago
For once, Betteridge's Law turned out not to be true! https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...

5 points by gnicholas 4y ago

TLDR: > The pattern that emerged was clear and consistent: The higher the pay ratio, the higher the average scores in our rankings. This was true for overall effectiveness, as well as for every one of the five areas we gauge… The results surprised us. Our expectation had been that, if anything, companies with the highest pay ratios would fare worse in our rankings—not better—because too big a discrepancy would make it difficult to nurture the kind of teamwork and trust that businesses need to succeed… A key reason, we suspect, is that the majority of CEO pay comes in the form of stock and stock options, and the most effectively managed companies in our rankings have, by and large, watched their shares perform very well in recent years, easily outpacing the benchmark Dow Jones U.S. Total Stock Market Index.

isitmadeofglass 4y ago
> A key reason, we suspect, is that the majority of CEO pay comes in the form of stock and stock options… So the argument is that if every company hired an Otter as CEO. We would see the same relationship that the more effective companies would have higher paid Otters, since it’s not due to higher pay letting them attract a better chief operating Otter capable of making the company more effective, it’s just showing that higher effectiveness yields higher pay because pay is directly tied to effective even if any Otter hired by the company would be equally irrelevant to the company effectiveness?
shawabawa3 4y ago
Sounds like they chose to use actual pay adjusted for stock appreciation instead of notional value of the pay packet at the time it was given, which seems really dumb to the point the whole study is useless
- gnicholas 4y ago
  I've only ever heard people complain about "CEO X made $Z million last year, which is 40x the average employee pay". These complaints reference the total comp package, IIRC. To the extent that this is what people are talking about, a study that looks at this larger figure seems useful. It would be good to cut things up more ways, if it gives different results.

gnicholas 4y ago

For once, Betteridge's Law turned out not to be true! https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...