On the Nature of Things | Forum

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.

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.

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.

In the real world, people frequently do things that have been repeatedly shown to be bad for them.

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.

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

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

Mr. Perfect wrote:If high pay is bad for shareholders why do shareholders approve of it.

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.

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

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.

Mr. Perfect wrote:John Kenneth Galbraith is a left wing moron.

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.

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.

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.

Perhaps. However, given that, he was still smarter than most US right-wingers . . .

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.