Imagine you’re the Minister for Education, deciding how large to make a school district. Smaller school districts offer parents more school choice. For example, in Boston, there are 70 school districts within a 30-minute commute of the downtown area, so parents with a job in downton Boston have 70 districts they can live in and …
One of the most fundamental concerns with corporations is that they focus on short-term profit rather than investing for the long-term. This is a particular concern in the 21st century, where innovation is particularly critical for competitive success. Moreover, allegations of short-termism have serious social repercussions. Long-term investments, such as reducing carbon emissions, developing blockbuster drugs, or …
CEOs Cut Investment To Sell Their Own Shares At High Prices Read More »
Today the House of Commons Select Committee on Business, Energy, and Industrial Strategy (BEIS) published its report on corporate governance, after extensive consultation of oral and written testimony from a wide range of stakeholders. I applaud the Select Committee for such an extensive, thorough job with an issue of national importance, and am personally grateful …
How did BP CEO Bob Dudley get paid £14m in 2015, despite the stock price falling by over 15%? Because of a complex, opaque pay scheme known as a Long-Term Incentive Plan (“LTIP”). A LTIP pays the executive according to multiple performance measures – for example, stock price, profitability, and sales growth – at the end …
Simplicity, Transparency, and Sustainability: A New Model For CEO Pay Read More »
Arguably the most convincing “smoking gun” evidence that CEO pay is excessive is how it’s risen much faster than median worker pay. In the U.S., CEO pay was $10 million, 350 times that of the average worker in 2013, compared to 40 times in 1980. This seems to debunk any argument that CEOs deserve their …
Why has CEO pay risen so much faster than worker pay? Read More »
Executive compensation needs to be reformed. But, most of the calls for reform focus on the wrong dimensions. They focus on the level of pay, or the ratio of executive pay to median worker pay – even though the evidence suggests that low ratios are linked to lower future performance. As I have argued in the Wall Street Journal …
Long-Term Executive Incentives Improve Innovation and Corporate Responsibility Read More »
MSCI have released an impactful study entitled “Are CEOs Paid for Performance? Evaluating the Effectiveness of Equity Incentives”, purporting to show that equity incentives lead to poor long-term performance. In simple language, they just don’t work. This study has been highly influential and seized upon by the Wall Street Journal, CNN, and Fortune as “smoking gun” evidence that …
Why the MSCI Study Does NOT Show That Equity Incentives Backfire Read More »
Few topics make the public as angry as CEO pay. In the UK, the average FTSE 100 CEO earned £5.4m in 2015, 148 times the median worker. For US S&P 500 CEOs, these figures are even more extreme: $12.4m and 335 times. This pressures politicians to do something about CEO pay. Indeed, regulating pay might nowadays …
How Virtually Every Pay Regulation Has Backfired Read More »
Few business topics capture the public’s interest – and ire – as CEO pay. Indeed, a major reason why executives carried little weight in the Brexit referendum was the belief that they are overpaid crooks. But, does perception actually match reality? The public’s view is largely shaped by what the media reports. And, the media …