Higher CEO Pay Leads to Lower Stock Returns

Discussion in 'Too Hot for Swamp Gas' started by mdgator05, Jun 20, 2014.

  1. mdgator05
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    mdgator05 Premium Member

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    Very interesting research. It finds that firms that pay CEOs in the top 10% of overall CEO pay experience 8% lower abnormal returns over the ensuing three years. Interestingly, this seems to be a result of overconfidence in the CEOs, in that they engage in a variety of behaviors including Merger behavior and investments for which the markets react more negatively than when lower paid CEOs engage in similar behavior. Now let's see if the free market adjusts as it should, by lowering CEO pay for those who currently make high income (who engage in overconfidence and destroy firm value).

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572085
  2. g8orbill
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    g8orbill Gators VIP Member

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    that is the fault of the BOD-they are the ones who make the decision to pay their CEO's so much money

    I do not know too many people who wold not take the salary if offered
  3. dangolegators
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    dangolegators Well-Known Member

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    It's an incestuous relationship. It's essentially a bunch of rich business people deciding how much to pay each other. It's like Drew Brees deciding how much Tom Brady will get paid. And next time Brees is negotiating a contract he can say 'look how much they're paying Tom Brady'. That's exactly what is going on with CEOs and BODs.
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  4. g8orbill
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    g8orbill Gators VIP Member

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    C'mon get over your pay envy
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  5. GatorGrowl
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    GatorGrowl Forum Admin Staff Member GC Staff VIP Member

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    Must be like a trade union where the workers all decide they should all be paid the same without regard to job skills or experience.
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  6. dangolegators
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    dangolegators Well-Known Member

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    No comment on the post? Just an attempt at a personal insult.
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  7. dangolegators
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    dangolegators Well-Known Member

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    Not quite, because unions at least have to negotiate with management over it. Not the case when a bunch of top executives are deciding how much each other will make.
  8. mdgator05
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    mdgator05 Premium Member

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    Frankly, it is tough to separate CEOs from the BOD. Look at the BOD for McKesson, who has the highest paid CEO (at least according to Forbes).

    http://www.mckesson.com/investors/corporate-governance/board-of-directors-bios/

    Intel Chairman, a Senior Counsel, Former CEO of Onyx Pharmaceuticals, their CEO (the very highly paid one), Chairman of London Bay Capital, retired CEO of Theragenics Corporation, retired CFO of ARCO, retired CEO of Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals, retired CEO of Qwest, and another Intel Chairman and former CEO of Aerogen.

    Obviously, BODs are going to have a lot of business experience, but it does have at least a sense of incestuousness when CEO pay is determined by a board of CEOs (with a wide ranging effectiveness in that job). This is especially true given the finding that overpaid CEOs display "overconfidence" in their abilities (and thus probably in their worth).
  9. g8orbill
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    g8orbill Gators VIP Member

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    I suggest you look again hoss
  10. dangolegators
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    dangolegators Well-Known Member

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    I looked at your post again, and you haven't edited it, so there is still no comment on the incestuous nature of CEOs and BODs from you.
  11. g8orbill
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    g8orbill Gators VIP Member

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    I responded- I said for you to get over your envy- what else was needed
  12. mdgator05
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    mdgator05 Premium Member

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    The only reason to be concerned that firms are potentially incestuously increasing pay with a lack of evidence that CEO pay results in stock gains (and now evidence that higher CEO pay lowers firm performance) is envy? Seems like there are a wide variety of non-envy based reasons to be concerned about that.
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  13. g8orbill
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    when we reach a point where our guvment starts telling a company what they can pay their CEO's we are no longer a free society- if it bothers you so much what they make then do not do bidness with them
  14. mdgator05
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    mdgator05 Premium Member

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    Well in order to do that, I would need to not do "bidness" with them, and about 6-7 other companies who have major figures on each of their boards. That is kind of the issue. So now if I don't want to do "bidness" with them, I have to logically not do "bidness" with those companies. And each of those boards will have 6-7 companies' CEOs represented on their boards. So now I am up to somewhere between 40-50 companies I won't do "bidness" with. And then they have CEOs on their boards....and on and on and on. I am not advocating governments saying what can be paid, but the current system of executive compensation also seems to destroy wealth, at least at those who buy most into the current system.
  15. dangolegators
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    dangolegators Well-Known Member

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    Maybe an actual comment on what I said, rather than the usual petty crap from you. But that is too much to expect, I guess.
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  16. dangolegators
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    dangolegators Well-Known Member

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    These guys like Bill have no problem with CEOs deciding how much to pay each other. They have no problem with that kind of conflict of interests when it comes to rich folks. Now it were poor folks, that'd be a different story and the outrage would be flying. But it's a different set of rules for rich folks.
  17. oaklandroadie
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    oaklandroadie Well-Known Member

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    This is a great study. It shows the free market works, and that progressive busy bodies and the federal government (but I repeat myself) can stay out of it. The market will find the correct equilibrium.

    Good find, md!
  18. mdgator05
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    mdgator05 Premium Member

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    That would be the hope. But it certainly hasn't happened yet, despite a lack of evidence that higher CEO pay led to higher returns (in fact, the article also points out that the evidence, while not as compelling as their work). So now we have to wait a few years and see if the free markets correct the issue. Then you can make your first statement (if it happens). As of now, you really can't. And of course if it doesn't happen, will you be consistent enough to recognize that they didn't work?
  19. dangolegators
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    dangolegators Well-Known Member

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    Actually it shows the opposite of that. If the free market were working in this case, the higher paid CEO would produce better results, not worse.
  20. Cruzer84
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    Cruzer84 VIP Member

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    You people do know that publicly traded companies are owned by... the public.
    Liberals seem to think that a corporation is a club of rich people making money off of slave labor. I'm still amazed by that ignorance.
    A company that performs poorly will be rewarded with a falling stock price. Eventually the CEOs of failing companies get replaced.
    As far as the misplaced outraged at the infinitesimal number of overpaid CEOs I wonder if you have the same outrage for athletes, actors, musicians and $1,000,000 an hour speakers named Clinton.
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