CEO Incentives Fail to Boost Company Performance
The topic of CEO compensation has taken center stage recently with news about top executives becoming incredibly wealthy even though they did little for their company’s stockholders. Over the years boards have supported incentive-heavy packages for CEOs by rationalizing that what’s good for the executive is good for the company. But compensation excesses, such as those at Enron and Tyco, have shown that what’s good for the CEO is not necessarily good for the shareholders.
A new study in the February-March issue of American Management Journal looks at the issue of executive compensation. The study, which was authored by four professors from Indiana University and Texas A&M, suggests that rewarding a CEO with stock and stock options does little to enhance a company’s performance. The study concluded that motivational compensation fails to improve a company’s financial success by any measurable means, including stock prices and return on assets.
The study’s lead author, Catherine Daily of Indiana University, said that even though motivational compensation doesn’t necessarily help a company’s performance, in most cases it doesn’t hurt it either, according to an article in USA Today. Ms. Daily believes that many CEOs are highly motivated individuals who are driven to succeed, with or without stock options.
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Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.