Why modesty is king when it comes to CEO remuneration

Vlerick Business School has developed a “rich” database, fed every year with data on all aspects of CEO remuneration (for example, remuneration level, remuneration structures, typology of long-term incentives, and key performance indicators) in listed firms in the United Kingdom, Germany, France, the Netherlands, Belgium and Sweden.

In the last edition, we were especially interested to find out which strategies underly executive remuneration in the best-performing firms (with sustained performance being operationalised as a significantly higher return on assets over a seven-year timeframe, compared with companies in the same industry).

In general, we found that the best-performing firms paid their CEOs relatively less, ceteris paribus (other things being equal); they were relying less on variable pay (i.e., the proportion of variable pay was lower); and they were characterised by a smaller pay ratio (i.e., pay span between the CEO and the average employee).

Interestingly, we found no difference regarding long-term incentives. This means that better-performing firms do not make more (or less) use of long-term incentives such as performance shares, stock options, and so on.

Source: Why modesty is king when it comes to CEO remuneration

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