High CEO pay bad for shareholders

Now, what news on the Rialto?
Post Reply
User avatar
Azrael
Posts: 1863
Joined: Thu Dec 22, 2011 8:57 pm

High CEO pay bad for shareholders

Post by Azrael »

The reigning ideology that higher CEO compensation is good for shareholders is demonstratively false.
Cooper, Gulen, Rau wrote:Performance for pay? The relationship between CEO incentive compensation and future stock price performance

Abstract

We find evidence that industry and size adjusted CEO pay is negatively related to future shareholder wealth changes for periods up to five years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of pay earn negative abnormal returns over the next five years of approximately -13%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers. Our results are consistent with high-pay induced CEO overconfidence and investor overreaction towards firms with high paid CEOs.
Image

From Jason Zweig at the Wall Street Journal -- Does Golden Pay for the CEOs Sink Stocks?
cultivate a white rose
User avatar
Typhoon
Posts: 27242
Joined: Mon Dec 12, 2011 6:42 pm
Location: 関西

Re: High CEO pay bad for shareholders

Post by Typhoon »

Once upon a time stock companies paid dividends to their shareholders.

Now the equivalent is paid to the exec management.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

If you are a company with healthy earnings growth paying dividends is a big opportunity cost;

If high pay is bad for shareholders why do shareholders approve of it.
Censorship isn't necessary
User avatar
Zack Morris
Posts: 2837
Joined: Mon Dec 26, 2011 8:52 am
Location: Bayside High School

Re: High CEO pay bad for shareholders

Post by Zack Morris »

Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;
A possible scenario is that investments that otherwise could have ended up as dividend payments might not pan out and the stock price drops when the realization that growth has petered out finally hits home. That's not exactly a win for shareholders.
If high pay is bad for shareholders why do shareholders approve of it.
In the real world, people frequently do things that have been repeatedly shown to be bad for them.
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

Zack Morris wrote: A possible scenario is that investments that otherwise could have ended up as dividend payments might not pan out and the stock price drops when the realization that growth has petered out finally hits home. That's not exactly a win for shareholders.
Then they turn into dividend paying companies. Everybody wins.
In the real world, people frequently do things that have been repeatedly shown to be bad for them.
Boy. Are you right about that.

Image
Censorship isn't necessary
User avatar
Taboo
Posts: 453
Joined: Fri May 04, 2012 11:05 am

Re: High CEO pay bad for shareholders

Post by Taboo »

Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;

If high pay is bad for shareholders why do shareholders approve of it.
My knowledge of corporate law is not what it should be, but I was under the (assuredly mistaken) impression that CEO pay is determined by the board of directors, who are in theory responsible to shareholders, but in practice are a bunch of fellow CEOs from other companies, who cheerily vote each other pay rises.
User avatar
Typhoon
Posts: 27242
Joined: Mon Dec 12, 2011 6:42 pm
Location: 関西

Re: High CEO pay bad for shareholders

Post by Typhoon »

Taboo wrote:
Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;

If high pay is bad for shareholders why do shareholders approve of it.
My knowledge of corporate law is not what it should be, but I was under the (assuredly mistaken) impression that CEO pay is determined by the board of directors, who are in theory responsible to shareholders, but in practice are a bunch of fellow CEOs from other companies, who cheerily vote each other pay rises.
The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.

~ John Kenneth Galbraith
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
User avatar
Typhoon
Posts: 27242
Joined: Mon Dec 12, 2011 6:42 pm
Location: 関西

Re: High CEO pay bad for shareholders

Post by Typhoon »

Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;
So paying the part owners of a company is an opportunity cost, while redirecting the dividend to executive pay is not?
Mr. Perfect wrote:If high pay is bad for shareholders why do shareholders approve of it.
They don't. Exec pay is set by the board of directors. A convenient backscratching arrangement.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

Executive pay is a small percentage of earnings; dividends are all of earnings

Boards of directors are chosen by the shareholders. If shareholders don't like what they are doing they can vote in new ones.

John Kenneth Galbraith is a left wing moron.
Censorship isn't necessary
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

Taboo wrote:
Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;

If high pay is bad for shareholders why do shareholders approve of it.
My knowledge of corporate law is not what it should be, but I was under the (assuredly mistaken) impression that CEO pay is determined by the board of directors, who are in theory responsible to shareholders, but in practice are a bunch of fellow CEOs from other companies, who cheerily vote each other pay rises.
That's how shareholders want it. If they wanted something different there is literally nothing to stop them. Literally.
Censorship isn't necessary
User avatar
Typhoon
Posts: 27242
Joined: Mon Dec 12, 2011 6:42 pm
Location: 関西

Re: High CEO pay bad for shareholders

Post by Typhoon »

Mr. Perfect wrote:Executive pay is a small percentage of earnings; dividends are all of earnings
Image

Executive compensation is of the same order of magnitude as the dividend yield, exceeding the yield in some cases.
Mr. Perfect wrote:Boards of directors are chosen by the shareholders. If shareholders don't like what they are doing they can vote in new ones.
The large institutional investors don't care. They make their money from the golden crumbs of fees.

The small individual investors have been indoctrinated to believe in the Greater Fool Theory.
Mr. Perfect wrote:John Kenneth Galbraith is a left wing moron.
[I think you mean "was".]

Perhaps. However, given that, he was still smarter than most US right-wingers . . .
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
User avatar
Typhoon
Posts: 27242
Joined: Mon Dec 12, 2011 6:42 pm
Location: 関西

Re: High CEO pay bad for shareholders

Post by Typhoon »

Mr. Perfect wrote:
Taboo wrote:
Mr. Perfect wrote:If you are a company with healthy earnings growth paying dividends is a big opportunity cost;

If high pay is bad for shareholders why do shareholders approve of it.
My knowledge of corporate law is not what it should be, but I was under the (assuredly mistaken) impression that CEO pay is determined by the board of directors, who are in theory responsible to shareholders, but in practice are a bunch of fellow CEOs from other companies, who cheerily vote each other pay rises.
That's how shareholders want it. If they wanted something different there is literally nothing to stop them. Literally.
As with many political/economic/social/cultural theories, such arguments ignore the human factor:
if only people behaved in a certain way, then everything would be fine.

Human nature does not operate according to a set {X} of simple rules, but invariably throws a Spaniard into the works.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

Typhoon wrote:
Mr. Perfect wrote:Executive pay is a small percentage of earnings; dividends are all of earnings
Executive compensation is of the same order of magnitude as the dividend yield, exceeding the yield in some cases.
I don't think so, and I'm not sure how it is relevant to this conversation. Also, your chart support my thesis entirely, that Executive pay is a small percentage of earnings.
The large institutional investors don't care. They make their money from the golden crumbs of fees.
Who told you that?
The small individual investors have been indoctrinated to believe in the Greater Fool Theory.
i don't think small investors have even heard of that theory. Rather, small investors buy hoping the stock will go up, and sell when they think it will go down. Sometimes they are right, sometimes they are wrong. And the world keeps turning.
Perhaps. However, given that, he was still smarter than most US right-wingers . . .
Really. This is based on what?
Censorship isn't necessary
Mr. Perfect
Posts: 16973
Joined: Mon Dec 12, 2011 9:35 am

Re: High CEO pay bad for shareholders

Post by Mr. Perfect »

Typhoon wrote: As with many political/economic/social/cultural theories, such arguments ignore the human factor:
if only people behaved in a certain way, then everything would be fine.

Human nature does not operate according to a set {X} of simple rules, but invariably throws a Spaniard into the works.
We can agree on that.

Some people believe that if other people would conform to their ideas and limit the pay of CEOs the world would be better in some way.
Censorship isn't necessary
User avatar
Azrael
Posts: 1863
Joined: Thu Dec 22, 2011 8:57 pm

Re: High CEO pay bad for shareholders

Post by Azrael »

Image
cultivate a white rose
Post Reply