If shareholders think a CEO has done something good to boost profits, they reward the boss with a pay increase amounting to 48.9% (on average) of the perceived contribution to higher profits. But when the CEO is seen as causing a profit decline, there’s a zero effect on his or her pay, Lucian A. Taylor of The Wharton School reports from his study of more than 4,500 chief executives. This “downward rigidity” of CEO pay is pervasive in companies, whether their governance is good or bad. CEOs are in effect insured against bad news about their abilities, Taylor says.
Good News Boosts the CEO’s Pay; Bad News Has No Effect
If shareholders think a CEO has done something good to boost profits, they reward the boss with a pay increase amounting to 48.9% (on average) of the perceived contribution to higher profits. But when the CEO is seen as causing a profit decline, there’s a zero effect on his or her pay, Lucian A. Taylor […]
June 12, 2013