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High CEO Pay = Low Company Performance

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Mr. Moneybags

Today, Huffington Post ran an article showing that

High CEO Pay May Correlate With Lower Long-Term Stock Value.

This corresponds to an article I wrote nearly a year ago showing roughly the same thing:

High pay equals low performance.

No one is talking about this - certainly not the CEOs! But there is actually evidence that, in most cases, CEOs that are paid above industry averages do a WORSE job of running their companies. Think Bob Nardelli or Dick Fuld. These guys ran their companies into the ground and were paid hundreds of millions to do it. Warren Buffet, for all his vast wealth, actually makes only a modest salary, by CEO standards, and lives relatively modestly in the same house he bought 50 years ago (most of his wealth will be going to the Gates' foundation, as will Bill Gates' - another ex-CEO who drew relatively little in salary). It turns out that people who want to collect a lot of money up front are really in it for the short term, and are often willing, or at least unable to prevent, having their companies soar, then crash and burn, instead of planning for a long term future.

The idea that we have to pay gargantuan salaries, bonuses etc. to get better performance is not only a myth, it is actually counter-factual.

So, when a John Thain or some similarly overpaid CEO complains that lowering salaries to a "mere" $500,000 a year would discourage talent, you can say it would actually encourage it, or more prosaically, "Don't let the door hit you on the way out." Or, take them up on their offer, as I did here:

My Personal Offer to the Financial Robbers: Prepaid Banishment

Here are some links that back up the fact that we are over-paying for under-performance. As citizens and shareholders, we deserve better.

click here

click here

I hope one of the study's metrics - CEO Pay Slice (CPS) - will become a standard part of every investor report, but I wouldn't hold my breath.
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Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:

Scott is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens (more...)

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