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Day of action focuses on CT undocumented's healthcare needs; 7 jurors seated in first Trump criminal trial; ND looks to ease 'upskill' obstacles for former college students; Black Maternal Health Week ends, health disparities persist.

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Report: Firms that overpay CEOs are underperforming S&P 500 average

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Wednesday, January 10, 2024   

A recent report looking at executive compensation found companies with the most overpaid CEOs had lower returns to shareholders than the S&P average.

The nonprofit shareholder advocacy group As You Sow recently produced its 10th report on the 100 most overpaid CEOs. The report found while the average S&P 500 firm saw annualized returns of 8.5%, companies on the most overpaid list lagged at 7.9 % with the 25 worst seeing only a 6% return.

Rosanna Landis Weaver, director of wage justice and executive pay for As You Sow, said over time, changes in social norms, corporate compensation strategies, the tax code and rules around stock repurchases have contributed to overpaid executives.

"If we look at the period of history when America was a leader in creating solid middle class jobs, but also industry growth, companies plowed back any excess money into the company, into research and development into new initiatives," Weaver pointed out. "What we've had companies saying lately is, 'You know what the best thing I can do with this money is buy my own stock.'"

Since passage of the Dodd Frank bill, shareholders can vote on executive compensation. Weaver pointed out when shareholders vote against excessive CEO pay, corporate boards listen and many have made changes with some reducing executive pay.

In the 1960s, executive pay averaged about 20 times more than their employees. Current data show the number now averages 300 times more, and the report showed the most overpaid executives make thousands of times more than their average worker. Weaver argued no one person added that much value to a company.

"There is no person in the world that added as much value as 1,000 other people," Weaver contended. "There's no question if 1,000 workers disappeared, versus if the CEO disappeared, what would be the outcome."

When As You Sow began its reports 10 years ago, the average compensation of the 10 most overpaid
CEOs was $56 million. This time, the number was $88 million, a 59% increase. While boards have long been compensating executives with stock options, Weaver noted it creates the potential for short term thinking.

"If you attract somebody who's primary interest is seeing how much they can score, that's not good for shareholders long term, because that incentivizes a real short-term focus," asserted. "Maybe you want to cut jobs and cut services, and Wall Street likes that, and the stock price goes up, but you're hollowing out a company in the long term. And I think we've seen too much of that."

She added some shareholder groups are now advocating for changing stock ownership rules for executives so they are required to hold shares for a longer period of time after leaving the company.

This story was produced based on original reporting by Sonali Kolhatkar for Yes! Magazine.


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