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So much for that whole "companies need to pay CEOs giant piles of money to get top talent and ensure profit" thing:
Okay, it's not quite random. But it's right next door.
This graph shows the pay of 200 CEOs and the stock returns of their companies:
The trend line—the average of how much a CEO’s ranking is affected by stock performance—shows that a CEO’s income ranking is only 1 percent based on the company’s stock return. That means that 99 percent of the ranking has nothing to do with performance at all. (The size and profitability of companies didn’t affect the random patterns.)
If “pay for performance” was really a factor in compensating this group of CEOs, we’d see compensation and stock performance moving in tandem. The points on the chart would be arranged in a straight, diagonal line.
... even when companies boast that they tie executive compensation to company performance, the country’s largest companies routinely game those systems to ensure they get their bonuses and payouts, such as setting targets so low as to be meaningless or fluffing up their reported profits. ... Worse, out of the highest-paid CEOs over the past 20 years, nearly four in ten were fired, caught committing fraud, or oversaw a company bailout. Incompetence doesn’t stand in the way of a big payday.
Not that any amount of data will ever convince companies that high CEO pay is the wrong way to go—the results they care about are in the bank accounts of top executives. But you'd think eventually it might sink in with the reporters who cover business, and we might start seeing more skeptical reporting about CEO pay.