Time To Rethink CEO Compensation

Three decades ago, company shareholders and investors decided that CEOs should receive their primary compensation not from base salaries but from equity incentives — longer-term stock options that would give these top executives a stake in the company and its performance. This way, investors thought, CEOs would have a personal interest in growing the company. But according to a recent study by MSCI MSCI +%, an investment and corporate governance research firm, companies that paid their CEOs above the median have performed poorly in comparison with those that compensated their chief executives at or below the median (even though equity accounts for 70% or more of the typical annual pay package). This finding has held true especially in the long run.