I want to remind everyone here assembled that, over the Christmas holidays, a Harvard study on CEO pay suggested that when the CEO makes more than 35 percent of the total top five officers' pay, the stockholders' returns in future periods suffer.
In the last year for which there will ever be such a report (year-ended 2008), Ex-CEO Fred Hassan's pay made up a whopping 51.4 percent of the total of the top five's pay at legacy Schering-Plough -- or 47 percent more than the potential "danger zone" (or excessive CEO compensation, vis-a-vis the other four top officers), which the Harvard compensation study identified. Here's a link to that earlier study -- and, a snippet:
. . . .The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number — which averages about 35% — the "CEO pay slice."
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". . . .
Indeed.
3 comments:
Another way to look at this is that when the CEO makes more than 2.15 times the average of the next 4 officers returns suffer.
From the little I've seen I'm don't know if 2 fold is out of the ordinary at this level. Although it does indicate that when CEOs receive a disproportionate share (> 2.15 fold) returns suffer.
For comparison Fred made 4.16 times the average compensation of the other 4.
Salmon
Condor;
over on Cafepharma the Merck board had this:
http://www.app.com/article/20100108/BUSINESS/100108049/Merck-s-Vytorin-study-delays-push-back-results-1-year
It appears the results for Improve-it are now scheduled for 2013
I'd be careful of the analysis done by percents since Fred could have just paid the others more to tweak this metric. Salary as percent of earnings, or salary divided by total # of employees would be interesting to see.
Gone are the Ben-n-Jerry days where their CEO pledged to tie his salary to a multiple of the lowest paid worker in the company.
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