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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsHigh CEO salaries can be bad for business, U. study finds
SALT LAKE CITY A University of Utah study indicates that some highly paid executives may actually decrease the value of their firms through poor operation strategies.
Research from the U.s David Eccles School of Business found that CEOs who receive higher incentive pay often lead their companies to decreased financial performance.
The study found that the highest paid CEOs earn significantly lower stock returns for up to three years. Additionally, CEOs with an average compensation of more than $20 million were associated with an average yearly loss of $1.4 billion for their firms.
It has become well-established in academic research that businesses are racing to pay their executives more and more, said Mike Cooper, professor of finance and the studys lead author. However, this runs counterintuitive to what is actually smart business.
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Uben
(7,719 posts)Because some rich folks like the title of being on the board of directors when they have no clue how businesses are run. They give these CEOs that they hired (in their ignorance) free reign to do as they please without over-sight. They pay outrageous salaries to some CEOs thinking they won't have to make responsible decisions while serving on the board. The CEO does as he pleases, winds up losing the company millions, if not billions, and retires comfortably with the golden parachute he negotiated with his salary. The rich little pieces of shit board members finish their term on the board, are replaced, rinse and repeat. Shareholders eat the loss and the CEO chuckles while sipping his cocktail aboard his $20 million dollar yacht.
Watch every dollar and hold people accountable!
Igel
(35,359 posts)If you do a really good job, part of the success is because you know what you're doing; part is chance. The "you know what you're doing" may give above average results on average because that's not likely to change all by itself, but people want superstars, meaning they assume the part due to chance is *also* due to skill.
So you hire a successful CEO, one that has worked wonders. (Even if some of the wonders are on paper and only short term. Often enough they do work wonders.)
But chance varies. After a great success that really *is* a great success you're much less likely to repeat it: If you have a 1 in 10 chance of lucking out, after a great success, all things being equal, you still have a 1 in 10 chance of being lucky. But because people who are successful tend to think it's all their own doing they assume it's a 1 in 1 chance--and that makes them foolish.
Still not quite as foolish (on average) as those who think that it's not any of their own doing and and it's all luck. People really like binary thinking.
liberal N proud
(60,346 posts)Two things motivate CEO's: Return on Investment - meaning stock share and what they will walk away with.
I am working for a company that as we were cutting the staff by more than 50% and closing facilities, the stock went up and the CEO walked away with 54 million salary in the same year everyone lost their job.
As a stock holder, I recieved a dividend and that is what mattered to the CEO.
Now after spending 25 years putting companies together, they are using the exact same reasons for splitting them apart into separate companies. And the stock market is reacting with the same reward, a higher stock price.
Business are no longer in business to do business!
freebrew
(1,917 posts)They(ceos) also get to undermine labor/union contracts and use pension monies for their platinum parachutes.
It's all in good fun, right?
Thinkingabout
(30,058 posts)economy, WHAT? The economy would be boosted by dividing those raises with the employees who goes out and buys products, eats out more , etc because there are many more of us than them.
How do they get the raises, they get on different boards, I give you a raise, you give me a raise, we go to different boards and give raises, guess what we have to keep up with the other companies. What a crock!
Aristus
(66,467 posts)I want a $60 million-dollar signing bonus, a $100 million-dollar yearly salary, a yearly percentage-based cash bonus, and a $75 million-dollar separation package, payable even if the company loses money under my leadership."
And boards of directors actually agree to this shit!...
So, yeah. This study is the first chapter in the Book Of Duh...
Uncle Joe
(58,426 posts)Thanks for the thread, n2doc.