No. of Recommendations: 31
This is a really interesting study. Contrary to the whines of our wingnut posters who fear information that might find that their precious "job creators" are not deities, the study simply evaluates the relationship between CEO compensation and company performance. Not only does higher pay relate to a lower future stock price for the company, it also predicted lower future accounting profitability. It does more than this, though. It also finds causal relationships for the negative correlation that they found. In other words, the study shows that the CEOs are fundamentally altering the profitability of the firms in a negative fashion.

Some of the study's observations (

High paid CEOs are

- over investing in bad projects and trying to take over other firms, and those takeovers usually aren’t good — as judged by the stock market reaction

- have longer tenure and have consistently worse long-term returns by approximately 12 percent

- are skilled in negotiating the complicated politics of the boardroom, so they are able to remove any barriers to advancing their flawed agendas

The study does not prove that increased pay is always bad. It does show there is a link between increased pay and decreased financial performance.

The investigators provide some guidance to businesses: Businesses should re-examine how they approach executive compensation and incentives to maximize the financial performance of their business.

What investors and businesses choose to do with this information is up to them.
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