The Wall Street Journal is running an exellent roundup -- on "Top Five Officer" payscales, and in the process, has highlighted two new studies -- one by a Harvard law professor; the other from Purdue's biz school. Both point to the conclusion that excessive officer pay is inversely correlated with total stockholder returns, in future periods.
Confidential Note to Hans Becherer (ex-compensation committee chair of the board, file photo at left) -- Do you now see yourself, when paying CEO Fred Hassan, and his merry band of thugs and robber-barrons, over at Old Schering-Plough, in these results? You should. SGP was wiped from the face of the Earth, due in large part to these excesses. The execesses motivated destructive behaviors. To the Journal, then -- but do go read it all:
. . . . It turns out that the bigger the CEO's slice of the pie, the lower the company's future profitability and market valuation. "These CEOs," says Prof. Bebchuk, "seem to be trying to grab more than they should."
Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years.
Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million—but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO's pocket takes $100 out of shareholders' pockets. . . .
Indeed -- some empirical proof of what has felt intuitively obvious, at least to me, for several years now.