Do High CEO Salaries Pay Off?
With so much talk about soaring pay for CEOs — who may earn multiples more than their midlevel peers — people are asking, “Are they worth it?” Perhaps they are, because globalization rewards talent at the top, argues Professor Maria Guadalupe, based on her recent research. Her study, with Vicente Cuñat of the Universitat Pompeu Fabra, examined causality between globalization and performance-based pay. Their key findings? As global competition grew over the 1990s, so did the link between executive pay and performance, with a higher proportion of all compensation coming from incentive-based pay than in the past. In fact, a whopping 35 percent of the rise in performance-linked contracts from 1992 to 1999 can be attributed to greater competition from globalization, the researchers say, with total compensation rising faster and higher for CEOs than the four highest-ranking executives below them. “Compensation contracts are changing because markets are changing,” says Guadalupe. “As foreign
