A corporatist meme took a face plant this week. Bloomberg Business Week charted CEO pay vs. stock market return, based on data supplied by the executive compensation consultants, Equilar. It shows that there is very little correlation between CEO pay and company performance.
Equilar ranked the salaries of 200 highly paid CEOs against their company’s stock market return, and the scattering of data looks mostly random, implying that CEO performance appears to have little to do with CEO compensation. The graph plots the relative ranking of 2013 stock market return against the relative ranking of 2013 CEO total compensation. If you go to Bloomberg, the chart below is interactive. You can hover over a dot and see information on the CEO and company.
Bottom line: there’s essentially no link between how well CEOs perform and how well they are paid:
Based on this, it seems that corporate boards are unable to predict how well their chosen CEO candidate will do once on the job, since the trend line, which didn’t plot in this screen capture, shows that the correlation is ~1%. That explodes the myth that a primary metric used by company board compensation committees to justify CEO pay is stock market return.
CEO pay isn’t the government’s business, but corporate governance is. When governance is based on something other than what shareholders are told, it is worth a look.
In other news, the immigration issue continued, with Texas Governor Perry’s grandstanding. He was joined by many in Congress and in the media, some of whom wanted to be sure that the Texas National Guard was armed against the threat implied by children illegally crossing our border.
Lady Liberty’s meditation on immigration is lost in the noise:
An alternative strategy might build sympathy for the kids’ plight:
In Obamacare news, courts made two opposite decisions using the same facts:
It was another week of some Advising but very little Consenting:
The loss of MH17 brought no new facts, just grandstanding here as well:
Gaza, along with Ukraine, show how missile use has changed in 45 years:
The lawsuit over Obamacare will be a shallow victory if they win. States already are moving to make their federal websites into state websites. and to the extent that the working poor are declined subsidies or incentives, these folks will howl. and it won’t be a joyful noise to the lord.
the issue of CEO pay is especially amazing. CEO pay goes up because of the nature of how the data is analyzed. If a trend exists, the trend will be exaggerated unless the analysis includes a much more complicated review that includes velocity (speed of increases over time). They don’t also assess performance with compensation so don’t really give any meaning to the CEO salaries that they do review.
The compensation sub-committee looks at salaries and gets a median than continues to increase. And outliers are not removed (on all they i have read about compensation committees, it does not seem that they remove outliers??) So the sub committee of the board, all beholden to the CEO, exaggerate the problem with each new salary. And each committee as they review keeps the trend going. The impact is like a very generous compounding of interest.