The new analysis produced counterintuitive results.
Photograph by Fairfax Media Fairfax Media via Getty Images
By Claire Zillman
July 25, 2016

Critics of exorbitant CEO pay got some new ammo Monday. New analysis found that some of the highest-paid CEOs oversee some of the worst-performing companies when pay and performance are tracked over several years.

Corporate-governance research firm MSCI summarizes its new study this way: “Has CEO pay reflected long-term stock performance? In a word, ‘no.’”

Equity incentive awards now comprise 70% or more of total summary CEO pay in the United States, according to MSCI, which examined 800 CEOs at 429 large and midsize companies in the United States from 2006 to 2015. If that pay was actually effective in incentivizing superior future performance, one would expect a strong correlation between higher pay figures and total shareholder return. MSCI’s analysis suggests the opposite:

[W]e found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance. In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns.

One-hundred dollars invested in the 20% of corporations with the top-paid CEOs would have grown to $265 over the study’s 10-year window. Meanwhile, $100 invested in the companies overseen by the lowest-paid CEOs would have increased to $367.

MSCI blames this misalignment, in part, on the Securities and Exchange Commission’s disclosure rules that focus on annual reporting instead of long-term results. It suggests that a CEO’s cumulative pay and performance data over his or her entire tenure should also be taken into account to reduce reliance on figures that only consider the short-term.

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