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- Apr 20, 2018
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I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.
-- John Cryan, CEO, Deutsche Bank
-- John Cryan, CEO, Deutsche Bank
There's no question that a public firm's CEO must be very adept at a lot of things, things most folks need not be good at. That said, there's a notion that by paying more a firm will obtain a better quality employee, and it strains credulity to think, and research concurs, a CEO receiving a $10M compensation package is a worse quality, worse performing CEO than one given a $15M or $30M package.
- CEO and Senior Executive Compensation in Private Companies
- Rethinking Executive Pay Design or Are CEOs Paid for Performance?
- "Has CEO pay reflected long-term stock performance? In a word, 'no.
"Companies that awarded their Chief Executive Officers (CEOs) higher equity incentives had below-median returns based on a sample of 429 large-cap U.S. companies observed from 2006 to 2015. On a 10-year cumulative basis, total shareholder returns of those companies whose total summary pay (the level that must be disclosed in the summary tables of proxy statements) was below their sector median outperformed those companies where pay exceeded the sector median by as much as 39%."
- "Has CEO pay reflected long-term stock performance? In a word, 'no.
- Interesting study, but it's ancillary to this thread's topic: CEO pay: Still not related to performance (health care industry specific)
- Stop Paying Executives for Performance
- "Companies should abolish contingent pay for their top executives because theirs is the least appropriate job for it. Decades of strong evidence make it clear that large performance-related incentives work for routine tasks, but are detrimental when the tasks is not standard and requires creativity."
- Off-Topic:
Some of you may have read my engagement bonus remarks from a different thread. The discussion and linked content you'll find at the above linked document discusses the principle behind that approach. When I negotiated those bonus clauses, I knew the instant my staff learned of them, they'd ask if I could rebalance the project workplan so we could be all but assured of earning the bonus. You know damn well, I told them I'd be happy to do just that, and earn the bonuses we did. That put material sums in my people's pockets.
- Off-Topic:
- "Abundant evidence shows that people -- including top managers -- will in fact start to behave differently if you make a large proportion of their remuneration dependent on some measure of performance. But it will not be in a way you want them to behave."
- "Companies should abolish contingent pay for their top executives because theirs is the least appropriate job for it. Decades of strong evidence make it clear that large performance-related incentives work for routine tasks, but are detrimental when the tasks is not standard and requires creativity."