Highest-paid CEOs generate lowest shareholder returns


Originally published at: http://boingboing.net/2016/07/27/highest-paid-ceos-generate-low.html


I ran this research a few years ago, with the same result: http://www.i4cp.com/trendwatchers/2012/06/06/how-to-earn-10-million-dollars


The Meritocracy in action!


Color me not surprised at all.


Similar results with mutual funds. Funds with big-name money managers typically underperform the market. Funds managed by a stupid algorithm do much better. True fax!



Hey! Hey! I remember this article!

I read it ages ago! You’re me-famous :slight_smile:

(Also: loved the take, good data wrangling, sir!)


Who’d a thunk that?


File that under the “Well Duh” category.

Edit: you can also put that trickle down economies doesn’t work in that category as well.


Possibly more interesting: the difference has been getting bigger since the crash. I’d be interested to know if there are other qualitative differences between higher and lower paid CEOs.


I think its interesting that highly compensated CEOs are the same type of people that balk at the idea of paying one star athlete a boat load of money and then having a bunch of who-dat who-deres on the team around them. They would be the first to say that you have too much money invested in one player and that it is not good for the overall performance structure of the team. That balance must b ein place and while there can be stars, there should never be such a skewed pay structure.

And yet, that is exactly what they want for themselves.


Quants would take issue with your characterization of their work product, albeit not your conclusion.


Well, the obvious one is that the higher paid ones prioritize making lots of money more and many of them have a greater sense of entitlement. That correlates pretty well with ‘useless’.

Working CEOs (founders, that sort of thing) are a completely different breed in my experience, and of course there are awesome executive CEOs out there, but in the same way as there are awesome doctors who have massive earnings…the rich ones are overrepresented by Ben Carson types.

It’d be neat if money was like scores where the more you had the better you were, but in most fields being the richest of the richest is instead a warning sign that a few sufficiently awesome people can overcome.


This is more or less what I was assuming as well, but why does the graph not see such a large difference before the crash?

Here’s a thought for someone to poke holes in: Once the recession hit, it was widely reported that many companies were cutting back on investment and stockpiling cash. What if the higher paid CEOs were effectively skimming their salary off of these reserves? That leaves the companies with less money to re-expand with and it isn’t as if you can pay the next guy less so they take a hit for the foreseeable future.


My pure, kneejerk, totally uneducated, lay-person guess about the gap spreading post-great-recession:

Chaos and panic is an attractive and conducive environment to looters.


I’m actually slightly surprised: I’m not laboring under the delusion that executive compensation is actually tied to performance or value; but, precisely because it has floated off into a strange world of its own, I would have expected a much weaker correlation, with CEOs who are good at getting paid showing up across all levels of managerial skill and good CEOs having varying levels of ability in getting particularly juicy compensation packages.

(The one exception to that expectation would be cases where the executive compensation is sufficiently large in relation to the company as a whole that it is enough to drag down shareholder returns all by itself. That’s often the case in situations @Boundegar mentions: it’s nontrivial to beat the average market returns; it’s really nontrivial to beat them by enough to justify your fee.)


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