Businesses run by the highest-paid CEOs are some of the most underperforming companies, research firm MSCI said.
Their study saw little evidence linking large pay to long-term stock performance. More surprisingly, CEOs who are paid less were found to earn larger investment returns.
“In fact, we found a small but consistently negative relationship, a possible indicator that superior performance may have been linked to lower rather than higher pay awards,” the report said.
MSCI looked into the salaries of 800 CEOs from 429 companies between 2005 and 2014. Figures were then compared to total shareholder returns.
As it turned out, the highest-paid CEOs grew a $100 investment to $264.76 in ten years. The lowest-paid ones, on the other hand, grew the amount to $367.17 in the same span of time.
The exact reason for such inverse relationship was not pointed in the study.
“A thorough exploration of the various aspects of current CEO pay practices that may have contributed to this apparent misalignment of CEO pay and shareholder returns is not in the scope of this report.”
Researchers offered an insight:
“We do believe, however, that much of the issue may stem from the emphasis on the annual review and reporting of CEO pay that is inherent in current reporting standards, particularly for U.S. companies.”
In the end, long-term investors were noted to bear the effects of such misalignment, but they “routinely approved CEO pay packages.”
The subject needs further exploration, but in the meantime, at least we still have the kind of CEOs who live in a trailer park, fund weddings and college tuition, or even cut their own pay to give their employees a livable $70,000 a year salary.