Firms With Highest CEO Pay Ratios Underperform With More Risk

A new study found that increasing CEO pay improves performance and reduces risk, but only up to a certain point, and then it actually becomes harmful

In September 2013, the SEC voted to require most companies to start disclosing their CEO pay ratio – the amount the CEO gets paid relative to the average employee. The rule didn’t have a specific policy objective, but greater transparency was in-line with other shareholder friendly measures such as Say on Pay and advocates thought it might put some pressure on excessive compensation packages. It turns out that most CEOs don’t get such extravagant packages, but the ones who do tend to underperform while taking on excess risk.

“Firms with extreme high pay ratios...