In this paper, Steven Kaplan from the University of Chicago Booth School of Business and National Bureau of Economic Research considers the evidence for three common perceptions of US chief executive officer pay and corporate governance.
The first is that chief executive officers are overpaid and their pay keeps increasing; the second is that CEOs are not paid for performance; and, finally, that boards do not penalise CEOs for poor performance.
While average CEO pay increased substantially through the 1990s, it has declined since then, Kaplan finds.
CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s.
In fact, the relative pay of large company CEOs is similar to its average level since the 1930s, the research indicates.
Kaplan’s work also reveals that the ratio of large-company-CEO pay to firm market value has also remained roughly constant since 1960.
This suggests that similar forces, likely technology and scale, have played a meaningful role in driving CEO pay, along with the pay of other top-income earners.
Kaplan also looks at the rate of CEO turnover and how executive pay is determined by the market.
Consistent with that is the widespread majority-shareholder support companies’ pay policies have received, despite the beefing up of regulations around shareholder rights and executive compensation.
Kaplan notes that top executive pay policies at over 98 per cent of S&P 500 and Russell 3000 companies received majority-shareholder support in the Dodd-Frank-mandated Say-On-Pay votes in 2011.
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