When the highest-paid CEOs aren't the most successful…

While the federal minimum wage has remained unchanged at $7.25 per hour since 2009 in the United States, the same cannot be said for executive compensation, which in some cases is now reaching astronomical heights. Surprisingly, between these two extremes, there seems to be one thing in common: in both cases, the performance isn't always up to the task.

We already knew that paying less than the minimum wage required to meet the basic needs of workers and their families has a negative impact on their job satisfaction, productivity, performance, motivation, and loyalty. What's perhaps less obvious, and what an analysis by As You Sow reveals, is that at the other end of the spectrum, overpaying the CEO by tens of millions of dollars doesn't necessarily translate into better company performance.

On November 15, 2023, As You Sow published the 10th edition of its 100 most overpaid CEOs list, which links inordinate executive compensation to corporate performance. This new version shows that companies with the most overpaid CEOs achieved lower shareholder returns than the average S&P 500 company. The typical S&P 500 company would have achieved an annualized return of 8.5% between February 2015 and September 2023. Meanwhile, annual corporate returns for the 100 most overpaid CEOs were just 7.9%. Worse, the 25 companies that pampered their CEO the most were even more lagging behind, with an annual return of 6%. We can therefore conclude that, "as a group, over a decade, overpaid CEOs underperformed".

The study also found that the total compensation of the most overpaid CEOs is on the rise. Just 10 years ago, the average salary of the 10 most overpaid executives was US$56 million. By 2023, the average had risen to US$88 million, representing an increase of 59% over this period.

Finally, As You Sow observes that its list of the 100 most overpaid CEOs includes several "repeat offenders" and "underperformers" among those executives. It notes that Discovery Communications, now part of Warner Brothers Discovery (appearing in all 10 lists), Fidelity National Information Systems (8 times out of 10) and Walt Disney (9 times out of 10) had negative total stock market returns over 5 years.

The 10 most overpaid CEOs

The main conclusions of As You Sow's analysis should enrich the arguments of investors who oppose excessive compensation and are calling for greater pay equity within companies. One thing's for sure: it would be to their advantage to take a closer look at companies' compensation practices and ensure that their funds allocation truly reinforces their performance.

Source: As You Sow, 10 Years of Study Shows Overpaid CEOs Underperform, November 15, 2023, ref. November 28, 2023, 10 Years of Study Shows Overpaid CEOs Underperform — As You Sow