Wednesday, July 12, 2017
High CEO pay is often in the news, with many pundits arguing that CEOs are paid too much. However, if a good CEO can increase the value of the company by an amount greater than the pay, then the CEO is a positive NPV investment. A recent study finds that companies with a CEO-worker pay ratio in the 85th percentile had an ROA 13 percent greater than the industry median and a Tobin's q that was 2.1 percent greater than the median. In other words, firm's with a high CEO-worker pay ratio tend to outperform other companies when evaluated with these metrics.