The Two Words That Earn CEOs a Pay Raise

For chief executives, two words can lead to a pay raise: shareholder value.

A newly published study of shareholder letters and executive compensation finds that CEOs who name shareholder value as their primary objective in investor letters received larger increases in their annual pay packages than chiefs who cited other priorities, such as improving customer loyalty or increasing market share.

The study, recently published in the Journal of Management Studies, examined 2,373 letters to shareholders from 590 CEOs of S&P 500 companies between 1998 and 2005. Authors Taekjin Shin of San Diego State University and Jihae You of Louisiana State University determined that corporate leaders who explicitly communicated their interest in maximizing shareholder value received higher annual compensation increases. The pay packages included salaries, bonuses, the value of stock-option grants, restricted stock grants and long-term incentive plans. Read More