Fat Paychecks Produce Bad CEOs

By SiliconIndia   |   Wednesday, 30 July 2014, 13:59 Hrs
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BANGALORE: A surprising discovery after a survey done Michael Cooper, a professor in Finance, and two other professors showed that CEOs who get paid a lot are horrible when it comes to making decisions for the company.  

An employee’s salary is nowhere close to that of their CEOs because the survey revealed that CEOs get a salary that is 296 times more than their employee. This is a shocker because that is a huge margin of difference of pay. We are inclined to think that they do a better job because after all they get huge paychecks right? Well guess what! The higher their pay the worse of CEOs they are.

The survey by Cooper did not focus on any particular firms or individual CEOs but a general view of CEOs because he believes that there are exceptions to this theory. When he was asked why this might be that high paid CEOs are horrible decision makers he replied saying “They ignore dis-confirming information and just think that they’re right,” basically in one word he said they are over confident.

In solution to this, Cooper pointed out that CEOs who don’t take home huge salaries but instead rely on compensations on stock and stock bonuses take  home a bigger pay check, for example Larry Ellison, the CEO of Oracle. He turned down his performance bonus and also took only $1 salary made huge returns through stock.

So Coopers advice to those who want to invest is not to get caught up with thinking that higher paid salary CEO’s companies are the best to invest in, but instead look for businesses that pay reasonably and focuses on stocks for compensation.

Also Read:
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