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The elusive linkage between CEO pay and performance

The elusive linkage between CEO pay and performance PurposeThe authors comment on the paper by Aguinis et al. (2018). The authors believe that their hypotheses probably are true, but their methodology is flawed and their data do not support their conclusions.Design/MethodologyThe authors review and comment on the paper by Aguinis et al. (2018).FindingsThe data do not adequately demonstrate a power law distribution for chief executive officer’s (CEO) performance because the analysis confounded external conditions affecting performance, and the authors use inappropriate dependent variables. The analysis does not demonstrate a power law distribution for CEO pay because the analysis does not take into account changes in pay level and mix over time. The analysis does not show a lack of overlap between the two distributions because it does not take into account the way that the CEOs are paid for performance and because it uses CEO pay averaged over CEO tenure.Research limitations/implicationsA more convincing analysis of the authors’ hypothesis would require the use of total shareholder return (TSR) as the dependent variable for organizational performance and would require a number of much more specific controls.Practical implicationsThe authors call for greater use of power law thinking by practitioners in setting CEO pay. Their analysis indicates that practitioners already think in power law terms and allocate CEO pay accordingly. Moreover, power law theory and findings could be misused as an excuse for paying average CEOs much more than they are already paid.Social implicationsThe authors add another perspective on CEO pay.Originality/valueThe authors’ perspective is informed both by research and by consulting experience on CEO pay projects. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research The Journal of the Iberoamerican Academy of Management Emerald Publishing

The elusive linkage between CEO pay and performance

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References (10)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1536-5433
DOI
10.1108/MRJIAM-10-2017-0787
Publisher site
See Article on Publisher Site

Abstract

PurposeThe authors comment on the paper by Aguinis et al. (2018). The authors believe that their hypotheses probably are true, but their methodology is flawed and their data do not support their conclusions.Design/MethodologyThe authors review and comment on the paper by Aguinis et al. (2018).FindingsThe data do not adequately demonstrate a power law distribution for chief executive officer’s (CEO) performance because the analysis confounded external conditions affecting performance, and the authors use inappropriate dependent variables. The analysis does not demonstrate a power law distribution for CEO pay because the analysis does not take into account changes in pay level and mix over time. The analysis does not show a lack of overlap between the two distributions because it does not take into account the way that the CEOs are paid for performance and because it uses CEO pay averaged over CEO tenure.Research limitations/implicationsA more convincing analysis of the authors’ hypothesis would require the use of total shareholder return (TSR) as the dependent variable for organizational performance and would require a number of much more specific controls.Practical implicationsThe authors call for greater use of power law thinking by practitioners in setting CEO pay. Their analysis indicates that practitioners already think in power law terms and allocate CEO pay accordingly. Moreover, power law theory and findings could be misused as an excuse for paying average CEOs much more than they are already paid.Social implicationsThe authors add another perspective on CEO pay.Originality/valueThe authors’ perspective is informed both by research and by consulting experience on CEO pay projects.

Journal

Management Research The Journal of the Iberoamerican Academy of Management – Emerald Publishing

Published: Apr 9, 2018

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