By: Monica Wang

Three decades ago, company shareholders and investors decided that CEOs should receive their primary compensation not from base salaries but from equity incentives — longer-term stock options that would give these top executives a stake in the company and its performance. This way, investors thought, CEOs would have a personal interest in growing the company.

But according to a recent study by MSCI MSCI +%, an investment and corporate governance research firm, companies that paid their CEOs above the median have performed poorly in comparison with those that compensated their chief executives at or below the median (even though equity accounts for 70% or more of the typical annual pay package). This finding has held true especially in the long run. Ric Marshall, executive director of MSCI’s corporate governance research team and a co-author of the report, said researchers looked at 10 years of data for more than 800 CEOs at 429 large public companies to measure the relationship between pay and performance. He explained that MSCI approached the topic from the perspective of the long-time investor. And what researchers found was that $100 invested in the top quintile of companies led by the highest-paid CEOs yielded $264.76 from 2006 to 2015, while the same amount put into the bottom quintile became $367.17 over the decade. The difference between their respective average 10-year total shareholder returns, including both capital gains and dividends, was a significant 39%. Read More