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The best-paid CEOs preside over companies with worse-performing stocks, according to a new report by investment research firm MSCI.
The report looked at the pay of 800 CEOs at 429 large-cap companies between 2006 and 2015. It found that CEOs who received higher levels of incentive-based pay led companies that recorded below-median stock returns.
Meanwhile, companies that incentivized CEOs below the sector median “outperformed those companies where pay exceeded the sector median by as much as 39 percent.”
Based on these findings, MSCI reached a stark conclusion: “Has CEO pay reflected long-term stock performance? In a word, ‘no.'”
The report notes that a typical CEO gets about 70 percent of compensation through stock incentives. The trend toward paying CEOs equity-based incentive pay has been in place for three decades, but has not benefited companies — or people who invest in them. According to the report:
We found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance. In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns.
For example, an investor who purchased $100 of stock in the companies that compensated their CEOs in the top 20 percent of the study group was likely to see the investment grow to $264.76 over 10 years.
By contrast, an investor who purchased $100 of stock in the companies that compensated CEOs the bottom 20 percent of the ranking was likely to end up with $367.17 over that same period of time.
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