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.

You may like these other stories...

From May 20-23, the Association for Accounting Marketing (AAM) held its annual conference. Frequent contributor Sally Glick picked up some ideas that she will be sharing with us in the coming days, as she has done in...
Success, for a practitioner in a busy CPA firm, requires the ability to handle multiple tasks effectively. To get everything done, CPAs typically track their agenda with a "to do" list or other open-item systems to...
Everyone loses clients. You've seen the statistics. Clients and heirs often change accountants, attorneys, and advisors after a death or divorce. That's understandable. What about ongoing relationships when the...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.