Thursday, December 31, 2009

And now we have scientific proof

That all those greedy bastards in the executive office are not creating value for their companies, they are destroying it for their own benefit.
In a study released last week, Raghavendra Rau and Huseyin Gulen of Purdue University and Michael J. Cooper of the University of Utah surveyed 1,500 companies that extended incentive compensation to their CEOs between 1994 and 2006, and examined whether pay correlated to stock performance.

The researchers compared CEO pay across their data set and found that the 10 percent of companies with the most highly paid CEOs earned unusually low returns in both the near- and long-term. And the effects worsened over time

For the companies whose CEOs earn the most in incentive compensation -- defined as restricted stock and stock options -- the returns were especially low. (This may not bode well for those Wall Street firms, like Goldman Sachs, who have taken to cutting down cash bonuses and boosting stock awards for execs.)
Curiously, the study's authors attribute this in part to overconfidence by management. Perhaps confidence that they can get away with it allows the top dogs to unleash their inner greed. We do know that, so far they are getting away with it to the diminishment of corporate America.

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