Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
Authors: David F. Larcker and Brian Tayan
Stanford Closer Look Series, March 28, 2017
Long Version
Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.
We ask:
• What does it say about a company’s succession plan when the board appoints a current director as CEO?
• What is the process by which the board makes this decision?
• Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure?
• What does the sudden nature of these transitions say about the board’s ability to monitor performance?
David F. Larcker and Brian Tayan
Stanford Closer Look Series
June 24, 2016
One of the most controversial issues in corporate governance is whether the CEO of a corporation should also serve as chairman of the board. In theory, an independent board chair improves the ability of the board to oversee management. However, an independent chairman is not unambiguously positive, and can lead to duplication of leadership, impair decision making, and create internal confusion—particularly when an effective dual chairman/CEO is already in place.
In this Closer Look, we examine in detail the leadership structure of publicly traded corporations and the circumstances under which they are changed. We ask:
• What factors should the board consider in deciding whether to combine or separate board leadership?
• How can the board weigh the tradeoffs between stability of leadership, efficient decision making, and decreased oversight?
• What structure should be the default setting for a corporation?
• Why do activists advocate that corporations strictly separate the roles when there is little research support for this position?
Authors: David F. Larcker and Brian Tayan
Stanford Closer Look Series, March 28, 2017
Long Version
Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.
We ask:
• What does it say about a company’s succession plan when the board appoints a current director as CEO?
• What is the process by which the board makes this decision?
• Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure?
• What does the sudden nature of these transitions say about the board’s ability to monitor performance?
David F. Larcker and Brian Tayan
Stanford Closer Look Series
June 24, 2016
One of the most controversial issues in corporate governance is whether the CEO of a corporation should also serve as chairman of the board. In theory, an independent board chair improves the ability of the board to oversee management. However, an independent chairman is not unambiguously positive, and can lead to duplication of leadership, impair decision making, and create internal confusion—particularly when an effective dual chairman/CEO is already in place.
In this Closer Look, we examine in detail the leadership structure of publicly traded corporations and the circumstances under which they are changed. We ask:
• What factors should the board consider in deciding whether to combine or separate board leadership?
• How can the board weigh the tradeoffs between stability of leadership, efficient decision making, and decreased oversight?
• What structure should be the default setting for a corporation?
• Why do activists advocate that corporations strictly separate the roles when there is little research support for this position?
• Chief executives are now thinking strategically about international business ethics—specifically, how trustworthy their companies need to be. To generate that trust, CEOs are not just interested in growth for their enterprises. They want to attain “good growth”: real, inclusive, responsible, and lasting growth. And they want their companies to contribute to good growth in every country where they operate.
Traditional institutions are undergoing a crisis of leadership as a result of reputational rows. Only one out of five people polled internationally for the Trust Barometer report carried out by Edelman every year believe that a business leader or a politician say the truth when facing a sensitive situation.
Alan Van der Molen, Edelman’s Global Vice President, believes that these data clearly reflect that while trust in institutions – companies and governments – is low, it is even lower with respect to those people who manage and represent these institutions: in the case of politicians and governments the difference is 28 ppt. That is why leaders are advised to change their leadership style and introduce more open, participative and inclusive elements in their leadership behaviour, thus encouraging dialogue, transparency and awareness of the opinions of different stakeholder groups.
This document was prepared by Corporate Excellence – Centre for Reputation Leadership and contains references to the statements of Alan Van der Molen, Edelman’s Global Vice President, Ángel Alloza, CEO of Corporate Excellence, Alberto Andreu, Telefónica’s Director for Corporate Reputation, Institutional Relations and Social Innovations, Alberto Artero, Director of Elconfidencial.com, and Ana Sainz, General Director of Seres Foundatio, made during the presentation of 2013 Edelman Trust Barometer 2013 held in Madrid.
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2016
Download
This Research Spotlight provides a summary of the research literature on whether companies with diverse boards (in terms of background, gender, or ethnicity) exhibit better performance and governance quality than companies without diverse boards.
It reviews the evidence of:
The relation between diversity and corporate performance
The relation between diversity and compensation
The relation between diversity and governance quality
The impact of mandatory quotas
The impact of diversity on group performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
The CS Gender 3000: Women in Senior ManagementCredit Suisse
Greater gender diversity in companies' management improves their financial performance. A new Credit Suisse Research Institute study presents the financial evidence, looks at which regions and sectors show higher diversity levels and analyzes the obstacles to female participation in the workplace.
To download a copy of 'CS Gender 3000: Women in Senior Management', click here: http://bit.ly/1cWMUIM
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
Powerful Independent Directors by Kathy Fogel, Liping Ma, and Randall Morcknusbiz
Shareholder valuations are economically and statistically positively correlated with more powerful independent directors, their power gauged by social network power centrality measures. Sudden deaths of powerful independent directors significantly reduce shareholder value, consistent with independent director power “causing” higher shareholder value. Further empirical tests associate more powerful independent directors with fewer value-destroying M&A bids, more high-powered CEO compensation and accountability for poor performance, and less earnings management. We posit that more powerful independent directors can better detect and counter managerial missteps because of their better access to information, their greater credibility in challenging errant top managers, or both.
The current economic crisis will impact home and retirement account values for years to come, but where it may have the biggest impact is in corporate reputations, where even the most respected brands in the financial services world have seen trust for their leadership and institutions drop to all time lows.
STANFORD CLOSER LOOK SERIES
Sign up to receive the latest research that explores topics, issues, and controversies in corporate governance: corpgovemail.com
Recent experience suggests that many CEOs and directors of failed companies are able to obtain or retain directorships at other companies after their departure. Should this be a concern for shareholders?
Startup | the impact of CEOs achieving superstar status on the performance of...Massimiliano Caruso
If you're a Chief Executive Officer, your job is to execute. What does it mean, in terms of daily tasks, to be the company’s top “executer”?
Many of the companies that surmount the challenges of growth have maintained attitudes most commonly found in young companies. What is the “FOUNDER’S MENTALITY”?
In sports, the “Sports Illustrated Jinx” is believed to affect athletes who appear on the cover of Sports Illustrated and in the entertainment industry, the term “Sophomore Jinx” refers to successful new performers who do not live up to the quality of their debuts. What is the “CEO Disease” and how is it related to CEOs achieving the SUPERSTAR STATUS?
Navigating Downturn Alley - The PRactice May 2016 issueThe PRactice
The startup environment in India is still positive but there are some signs of trouble in this ‘paradise’. Our 4th Viewpoint Roundtable – Navigating Downturn Alley – was aimed at highlighting ways in which startups can build greater brand relevance in good times in order to make it through the not-so-good ones. But is all this talk of a recession and systemic issues in the startup ecosystem overblown? One of our guest writers explains why she thinks so. We also explore the links between CSR, charity and business cycles through past recessionary data and a conversation with the Bangalore head of a charitable trust.
Seventy-four percent of Americans believe CEOs are not paid the
correct amount relative to the average worker. Only 16 percent
believe they are. While responses vary across demographic
groups (e.g., political affiliation and household income), overall
sentiment regarding CEO pay remains highly negative.
Recently, the Rock Center for Corporate Governance at Stanford
University conducted a nationwide survey of 1,202 individuals—
representative by gender, race, age, political affiliation,
household income, and state residence—to understand public
perception of CEO pay levels among the 500 largest publicly
traded corporations....
• Chief executives are now thinking strategically about international business ethics—specifically, how trustworthy their companies need to be. To generate that trust, CEOs are not just interested in growth for their enterprises. They want to attain “good growth”: real, inclusive, responsible, and lasting growth. And they want their companies to contribute to good growth in every country where they operate.
Traditional institutions are undergoing a crisis of leadership as a result of reputational rows. Only one out of five people polled internationally for the Trust Barometer report carried out by Edelman every year believe that a business leader or a politician say the truth when facing a sensitive situation.
Alan Van der Molen, Edelman’s Global Vice President, believes that these data clearly reflect that while trust in institutions – companies and governments – is low, it is even lower with respect to those people who manage and represent these institutions: in the case of politicians and governments the difference is 28 ppt. That is why leaders are advised to change their leadership style and introduce more open, participative and inclusive elements in their leadership behaviour, thus encouraging dialogue, transparency and awareness of the opinions of different stakeholder groups.
This document was prepared by Corporate Excellence – Centre for Reputation Leadership and contains references to the statements of Alan Van der Molen, Edelman’s Global Vice President, Ángel Alloza, CEO of Corporate Excellence, Alberto Andreu, Telefónica’s Director for Corporate Reputation, Institutional Relations and Social Innovations, Alberto Artero, Director of Elconfidencial.com, and Ana Sainz, General Director of Seres Foundatio, made during the presentation of 2013 Edelman Trust Barometer 2013 held in Madrid.
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2016
Download
This Research Spotlight provides a summary of the research literature on whether companies with diverse boards (in terms of background, gender, or ethnicity) exhibit better performance and governance quality than companies without diverse boards.
It reviews the evidence of:
The relation between diversity and corporate performance
The relation between diversity and compensation
The relation between diversity and governance quality
The impact of mandatory quotas
The impact of diversity on group performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
The CS Gender 3000: Women in Senior ManagementCredit Suisse
Greater gender diversity in companies' management improves their financial performance. A new Credit Suisse Research Institute study presents the financial evidence, looks at which regions and sectors show higher diversity levels and analyzes the obstacles to female participation in the workplace.
To download a copy of 'CS Gender 3000: Women in Senior Management', click here: http://bit.ly/1cWMUIM
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
Powerful Independent Directors by Kathy Fogel, Liping Ma, and Randall Morcknusbiz
Shareholder valuations are economically and statistically positively correlated with more powerful independent directors, their power gauged by social network power centrality measures. Sudden deaths of powerful independent directors significantly reduce shareholder value, consistent with independent director power “causing” higher shareholder value. Further empirical tests associate more powerful independent directors with fewer value-destroying M&A bids, more high-powered CEO compensation and accountability for poor performance, and less earnings management. We posit that more powerful independent directors can better detect and counter managerial missteps because of their better access to information, their greater credibility in challenging errant top managers, or both.
The current economic crisis will impact home and retirement account values for years to come, but where it may have the biggest impact is in corporate reputations, where even the most respected brands in the financial services world have seen trust for their leadership and institutions drop to all time lows.
STANFORD CLOSER LOOK SERIES
Sign up to receive the latest research that explores topics, issues, and controversies in corporate governance: corpgovemail.com
Recent experience suggests that many CEOs and directors of failed companies are able to obtain or retain directorships at other companies after their departure. Should this be a concern for shareholders?
Startup | the impact of CEOs achieving superstar status on the performance of...Massimiliano Caruso
If you're a Chief Executive Officer, your job is to execute. What does it mean, in terms of daily tasks, to be the company’s top “executer”?
Many of the companies that surmount the challenges of growth have maintained attitudes most commonly found in young companies. What is the “FOUNDER’S MENTALITY”?
In sports, the “Sports Illustrated Jinx” is believed to affect athletes who appear on the cover of Sports Illustrated and in the entertainment industry, the term “Sophomore Jinx” refers to successful new performers who do not live up to the quality of their debuts. What is the “CEO Disease” and how is it related to CEOs achieving the SUPERSTAR STATUS?
Navigating Downturn Alley - The PRactice May 2016 issueThe PRactice
The startup environment in India is still positive but there are some signs of trouble in this ‘paradise’. Our 4th Viewpoint Roundtable – Navigating Downturn Alley – was aimed at highlighting ways in which startups can build greater brand relevance in good times in order to make it through the not-so-good ones. But is all this talk of a recession and systemic issues in the startup ecosystem overblown? One of our guest writers explains why she thinks so. We also explore the links between CSR, charity and business cycles through past recessionary data and a conversation with the Bangalore head of a charitable trust.
Seventy-four percent of Americans believe CEOs are not paid the
correct amount relative to the average worker. Only 16 percent
believe they are. While responses vary across demographic
groups (e.g., political affiliation and household income), overall
sentiment regarding CEO pay remains highly negative.
Recently, the Rock Center for Corporate Governance at Stanford
University conducted a nationwide survey of 1,202 individuals—
representative by gender, race, age, political affiliation,
household income, and state residence—to understand public
perception of CEO pay levels among the 500 largest publicly
traded corporations....
January 23rd, 2012
What Is CEO Talent Worth?
By Professor, David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business
January 24, 2012
The topic of executive compensation elicits strong emotions among corporate stakeholders and practitioners. On the one hand are those who believe that chief executive officers in the United States are overpaid. On the other hand are those who believe that CEOs are simply paid the going fair-market rate.
Much less effort, however, is put into determining whether total compensation is commensurate with the value of services rendered.
We examine the issue and explain how such a calculation might be performed. We ask:
* How much value creation should be attributable to the efforts of the CEO?
* What percentage of this value should be fairly offered as compensation?
* Can the board actually perform this calculation? If not, how does it make rational decisions about pay levels?
Read the attached Closer Look and let us know what you think!
By David F. Larcker, Brendan Sheehan, and Brian Tayan
September 1, 2016, Stanford Corporate Governance Initiative, and Stanford Rock Center for Corporate Governance
CEOs and Directors on Pay: 2016 Survey on CEO Compensation
By David F. Larcker, John T. Thompson, Nicholas E. Donatiello, Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, Heidrick & Struggles, February 2016
Recently, Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University and the Rock Center for Corporate Governance at Stanford University surveyed 107 CEOs and directors of Fortune 500 companies to understand their perception of CEO pay practices among the largest U.S. corporations.
The research finds that public company directors give CEOs considerable credit for corporate success, believing that 40 percent of a company’s overall results, on average, are directly attributed to the CEO’s efforts.
HR, 3eAngelo S. DeNisi, Ricky W. GriffnThe amount of value.docxwellesleyterresa
HR, 3e
Angelo S. DeNisi, Ricky W. Griffn
The amount of value people create for an organization and what the organization gives them as compensation for that value are important determinants of organizational competitiveness. If employers pay too much for the value created by workers, then profits (and hence competitiveness) will suffer. But if they pay too little or demand too much from their workers for what they are paying, they will suffer in different ways: lower-quality workers, higher turnover, or employee fatigue and stress. Clearly, then, managing compensation and benefits are important activities for any organization. And just as clearly, Nucor managers have a keen understanding of the relationship between worker compensation and company performance.
Compensation and benefits refer to the various types of outcomes employees receive for their time at work. Compensation is the set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization. Benefits are the various rewards, incentives, and other items of value that an organization provides to its employees beyond wages, salaries, and other forms of financial compensation. The term total compensation is sometimes used to refer to the overall value of financial compensation plus the value of additional benefits that the organization provides.
Compensationis the set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization.
Benefitsgenerally refer to various rewards, incentives, and other things of value that an organization provides to its employees beyond their wages, salaries, and other forms of direct financial compensation.
In this chapter, we cover the basic concepts of compensation and benefits. We start by examining how compensation strategies are developed, and then we turn to the administration of compensation programs and how organizations evaluate their compensation programs. We look at benefits, discussing the basic reasons for benefit plans and describing different types of benefit plans typically found in organizations. Next we consider the often controversial topic of executive compensation, discussing the basic components of executive-compensation packages and why they are so controversial. We conclude with a discussion of legal issues associated with compensation and benefits and the ways in which organizations can evaluate their compensation and benefit programs.
9-1 DEVELOPING A COMPRATION STRATEGY
Compensation should never be a result of random decisions but instead the result of a careful and systematic strategic process.3 Embedded in the process is an understanding of the basic purposes of compensation, an assessment of strategic options for compensation, knowledge of the determinants of compensation strategy, and the use of pay surveys.
9-1a Basic Purposes of Compensation
Compensation has several f ...
How Extraordinary Leaders Double ProfitJim Clemmer
We've spent years decoding leadership trends, and we've discovered a pattern that's likely to pique your interest: extraordinary leaders can double profits.
US CEOs talk about creating value in uncertain timesCristina Ampil
Findings from the 2013 US CEO Survey highlight the US home-field advantage and asks: are US businesses prepared for more competition here? how do you disruption-proof your business, particularly your supply chain? how do you prepare for uncertainty in tax policy? how do you prepare the next generation of leaders? does your business have a social media strategy? how do you put customers at the center of your growth agenda? how do you protect your business against cyberthreats?
By David F. Larcker, Nicholas E. Donatiello, Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance at Stanford University, February 2017
In summer 2016, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,554 individuals to understand how the American public views CEOs who engage in potentially unethical behavior, and the public’s determination of “fair punishment” for these actions.
The study reveals that almost half of Americans believe CEOs should be fired (or worse) for unethical behavior. Violations of trust between company and customer are considered the most egregious. And, the public is surprisingly critical of CEOs who engage in “immoral” personal actions. Key takeaways include:
Almost half of Americans believe CEOs should be fired (or worse) for unethical behavior.
Violations of trust between company and customer are considered most egregious.
The public is surprisingly critical of CEOs who engage in “immoral” personal actions.
“We find that the public is highly critical of—and very willing to fire—CEOs who engage in behaviors that are morally or ethically questionable, even if these actions are not illegal and in some cases even if they cause no obvious harm to shareholders, employees, or the public,” says Professor David F. Larcker, Stanford Graduate School of Business. “This reflects, in part, the public’s lingering distrust of large corporations and CEOs in general.”
KEY FINDINGS INCLUDE THE FOLLOWING:
1. MEMBERS OF THE PUBLIC ARE EXTREMELY CRITICAL OF CEOS WHO ENGAGE IN QUESTIONABLE BEHAVIOR.
2. THE PUBLIC BELIEVES A VIOLATION OF TRUST BETWEEN A COMPANY AND ITS CUSTOMERS IS THE MOST EGREGIOUS ETHICAL VIOLATION A CEO CAN MAKE.
3. BOARDS OF DIRECTORS ARE STRICTER THAN THE PUBLIC IN ADMINISTERING PUNISHMENT.
4. AMERICANS ARE SURPRISINGLY CRITICAL OF POTENTIALLY IMMORAL BEHAVIOR.
5. MALE AND FEMALE CEOS ARE HEL
1 P a g e Q&A with Damon Silvers of the AFL-CIO .docxhoney725342
1 | P a g e
Q&A with Damon Silvers of the AFL-CIO
As workers’ wages fall, organized labor may experience a resurgence.
Interview by Adam Van Brimmer
6/23/2014
Organized labor in America is in decline. Unions
currently represent less than 7 percent of the private-
sector workforce, the lowest percentage in decades.
Those numbers trouble Damon Silvers, policy director
for the AFL-CIO. Yet Silvers anticipates a resurgence
in the labor movement as workers seek to regain
bargaining power. Falling real wages coupled with
cuts to health and retirement benefits make that push
inevitable. A federation of U.S. labor unions, the AFL-
CIO represents more than 12 million public- and
private-sector union members.
What is the greatest threat to the American
worker’s economic security?
It’s not a threat, it’s a reality—and it’s falling wages.
There are two big issues at work here. One is
essentially a policy decision to push our economy to
compete globally on flat, low wages. The other is that
plummeting wages create a country that cannot
maintain its place in the world, one that is unable to
preserve its infrastructure and educate its workforce.
That’s a scary situation because if you don’t have
infrastructure and educated workers, you go from being an economy that can make choices to one
locked into decline, or close to it.
Organized labor has long worked to protect wages only to see its influence wane. What’s
holding the labor movement back?
The American labor movement has been badly damaged by the generation-long, societal choice of
trying to compete globally through lower wages. Unions are and will continue to be an obstacle to
that strategy, as their purpose is to make sure workers get their fair share of the wealth they create.
The Great Recession has also hurt, as mass unemployment kills labor unions. Job losses not only
2 | P a g e
diminish our numbers but also damage the average worker’s ability to organize, since being out of
work or fearing for one’s job damages self-confidence.
What could lead to labor’s revival?
The issue comes down to rebuilding the collective confidence of the workforce in their own ability to
bargain effectively. The labor movement’s success going forward will come from being an effective
tool for that effort.
Where does the labor movement stand in terms of its political influence?
The numbers bounce around a little bit, but labor union household membership has remained
around a quarter of the electorate.
That’s nothing to sneeze at in terms of political clout. But the reality is it all depends on the ability of
labor unions to be a vehicle for working people to bargain for themselves. If we don’t do that, the
political power we have will not be sustainable.
How can HR professionals improve their relationships with labor and workers?
The most important thing is to be interested in having a productive relationship. Once ...
This case examines seven commonly accepted myths about corporate governance. How can we expect managerial behavior and firm performance to improve, if practitioners continue to rely on myths rather than facts to guide their decisions?
Study to investigate the correlation between the operating performances of fi...Charm Rammandala
The purpose of this study to understand whether there is a correlation between the operating performance of a firm and its CEO’s compensation. Various scholars and journalists studied and reported in this area over the years with mixed results. Popular notion among general public is that regardless of the performance of the company, CEO’s pay and perks either remain same or increase. Another accusation is most of the mergers and acquisitions taken place to boost the pay of CEO’s rather than to increase the value of shareholder. Study will look in to the validity of these claims to determine whether there is a correlation between the firm performances and the CEO pay
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
This Research Spotlight provides a summary of the academic literature on how dual-class share structures influence firm value and corporate governance quality. It reviews the evidence of:
• The relation between dual-class shares and governance quality
• The relation between dual-class shares and tax avoidance
• The relation between dual-class shares and firm value and performance
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
By Courtney Hamilton, David F. Larcker, Stephen A. Miles, and Brian Tayan, Stanford Closer Look Series, February 15, 2019
Two decades ago, McKinsey advanced the idea that large U.S. companies are engaged in a “war for talent” and that to remain competitive they need to make a strategic effort to attract, retain, and develop the highest-performing executives. To understand the contribution of the human resources department to company strategy, we surveyed 85 CEOs and chief human resources officers at Fortune 1000 companies. In this Closer Look, we examine what these senior executives say about the contribution of HR to the strategic efforts and financial performance of their companies.
We ask:
• What role does HR play in the development of corporate strategy?
• Does HR have an equal voice or is it junior to other members of the senior management team?
• Do boards see HR and human capital as critical to corporate performance?
• How do boards ascertain whether management has the right HR strategy?
• How adept are companies at using data from HR systems to learn what programs work and why?
By David F. Larcker and Brian Tayan, Stanford Closer Look Series, December 3, 2018
Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.
We ask:
• What factors do CEOs and founders take into account in determining how to implement governance systems?
• Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
• Which elements of governance add to business performance and which are done only for regulatory purposes?
• How much value does good governance add to a company’s overall valuation?
• When should small or medium sized companies that intend to remain private implement a governance system?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, October 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,544 individuals — representative by gender, race, age, household income, and state residence — to understand how the American public views CEOs who take public positions on environmental, social, and political issues.
“We find that the public is highly divided about CEOs who take vocal positions on social, environmental, or political issues,” says Professor David F. Larcker, Stanford Graduate School of Business. “While some applaud CEOs who speak up, others strongly disapprove. The divergence in opinions is striking. CEOs who take public positions on specific issues might build loyalty with their employees or customers, but these same positions can inadvertently alienate important segments of those populations. The cost of CEO activism might be higher than many CEOs, companies, or boards realize.”
“Hot-button issues are hot for a reason,” adds Brian Tayan, researcher at Stanford Graduate School of Business. “Interestingly, people are much more likely to think of products they have stopped using than products they have started using because of a position the CEO took on a public issue. When consumers don’t like what they hear, they react the best way they know how to: by closing their wallets.”
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www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
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Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
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Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
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Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
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Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
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Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
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Pay for Performance… But Not Too Much Pay: The American Public’s View of CEO Pay
1. Stanford Closer LOOK series
Stanford Closer LOOK series 1
By David F. Larcker and Brian Tayan
November 25, 2019
pay for performance... but not
too much pay
The American Public’s View of CEO Pay
introduction
Among the controversies in corporate governance, perhaps none
is more heated or widely debated across society than that of CEO
pay. Americans might not have strong opinions about chairman
independence, proxy advisory firms, staggered boards, or dual-
class shares, but they almost always have an opinion (usually
negative) about how much CEOs are paid. While researchers and
practitioners argue over concepts of labor market efficiency, pay
for performance, and shareholder alignment, to members of the
public the issue of CEO pay boils down to a personal assessment
of whether any executive deserves to be paid so much money.
That said, corporations are not monolithic entities. They vary
by size, industry, and performance, and it is not practical to assume
that CEOs—no matter what pay they are offered on average—will
earn the same amounts in all circumstances. To the American
public, how should pay vary with size and performance? Under
what circumstances do CEOs deserve higher pay, and in those
cases, how much higher should it be? When value is created, how
much of that value should be paid as compensation, and what are
the implications given the incredible size and market valuation of
America’s largest companies?
To gain insight into these issues, the Rock Center for
Corporate Governance at Stanford University conducted a survey
of the American public asking their views on CEO pay.1
The views
that American citizens have on CEO pay is centrally important
because public opinion influences political decisions that shape
tax, economic, and regulatory policy. These, in turn, have a
significant impact on the incentives offered to senior executives
who make the investment and capital allocation decisions that
determine the productivity of the general economy and therefore
the standard of living of average Americans.
americans and ceo pay
Not surprisingly, most Americans do not have a favorable view
of CEO compensation. Eighty-six percent of respondents believe
the CEOs of large, public U.S. companies are overpaid; only 14
percent do not. Responses are remarkably similar across political
party affiliation and household income levels (see Exhibit 1).
Responses are also stable over time. A 2016 survey by the Rock
Center found that 83 percent of Americans believed CEOs to be
overpaid relative to the average worker.2
CEO pay, however, is not constant across companies. It
varies based on size, profitability, and organizational complexity,
and therefore we might expect that views of pay will depend on
what company is being evaluated. For example, median total
compensation among S&P 500 companies is $12 million, while
median total compensation among Russell 3000 companies is
a much lower $4.1 million. Within the Russell 3000, company
market capitalization at the 90th percentile is $23.6 billion and
CEO pay is $13.3 million; at the 10th percentile, those figures are
$945 million and $1.0 million, respectively. That is, as company
size increases 25-fold, pay increases 13-fold (see Exhibit 2).
The typical American agrees that CEO pay should vary with
company size. However, they believe the relation between size
and pay should be much lower than it is in practice. For example,
a typical respondent believes the CEO of a large company by sales
($25 billion) should be paid only 50 percent more than the CEO of
a smaller company by sales ($25 million)—despite a 1,000-fold
difference in revenue between the companies. Only 4 percent of
Americans believe the CEO of the larger company should receive
10 or more times the compensation of the CEO of the smaller
company (see Exhibit 3).3
Similarly, Americans believe the CEO
of a company with 10,000 stores should be paid 50 percent more
than the CEO of a company with 10 stores—also a 1,000-fold
difference in size. Only 7 percent believe the CEO of the larger
company should be paid at least 10 times more (see Exhibit 4).
While the median results are the same in both scenarios, the
distribution of responses is skewed higher in the second scenario,
suggesting that size as measured by operational complexity (store
count) is a more salient factor to Americans than revenue.
Furthermore, Americans believe that CEOs should be paid
more for growth. Fifty-four percent believe the CEO of a company
2. Pay for Performance... But Not Too Much Pay
2Stanford Closer LOOK series
that is growing and hiring U.S. employees should be paid more
than the CEO of a company that is shrinking and laying off U.S.
employees (assuming they are in the same industry and similarly
sized today), while only 31 percent believe they should be paid
the same (see Exhibit 5). Similarly, two-thirds of Americans (64
percent) believe founders who have presided over the growth
of their companies deserve higher pay than professional CEOs
of similarly sized companies who are promoted to the job (see
Exhibit 6). This suggests the public places a high value on the act
of job creation in assessing CEO pay, which of course directly
affects the economic prospects of workers.
Still, the disconnect between observed pay levels and the
public’s view of pay is stark. Prior studies find that CEO pay
increases approximately $0.3 for every $100 change in shareholder
wealth, but the public believes it should increase only $0.05 for
that same change.4
This might be due to the fact that the public
views compensation changes through the economic practices
that exist across the bottom and middle of most organizations,
where promotions are compensated with 10 percent, 15 percent,
and 20 percent raises, rather than the economic practices that we
witness at the top of organizations where compensation scales
significantly with size and profitability. Alternatively, it might be
that Americans do not believe CEOs are responsible for much of
the value creation at their companies. To this end, when given
a hypothetical situation of a CEO who creates $100 million in
value through his or her management, respondents are willing
to share $10 million, or 10 percent of this value in compensation
(median response). However, when asked about a company that
is simply worth $100 million more at the end of the year than at
the beginning of the year, respondents are willing to give only
$500,000 as compensation, implying that CEOs are responsible
for only 5 percent of value creation (see Exhibit 7).5
The research
evidence on this question is very mixed. Prior studies conclude that
CEOs are responsible for as little as 4 percent and as much as 36
percent of company performance.6
Corporate directors estimate
that CEOs are responsible for 40 percent of performance.7
Americans also hold varying opinions about how CEOs
should be compensated relative to other highly paid professionals.
Sixty-two percent of the public believe the CEO should always
be the highest paid person in a company, whereas 38 percent do
not (see Exhibit 8). However, only 43 percent believe the CEO of
a movie studio should make more than $10 million per year if an
important actor at that movie production company makes $10
million per year; and only 40 percent believe the CEO of a sports
team should make more than $10 million if an important athlete
on that team makes $10 million per year (see Exhibit 9). That is,
many Americans believe other individuals within an organization
can be responsible for a larger portion of value creation than the
CEO, although opinions on this question are mixed.
The public is also divided over the extent to which CEOs are
promoted because of effort, luck, or connections. That is, what
fundamentally drives the career success of the CEO? Thirty-nine
percent believe CEOs are promoted because they worked harder
than others, while 27 percent disagree. Thirty-two percent believe
they were promoted because they were lucky; 31 percent disagree.
And an overwhelming percentage (61 percent versus 8 percent)
believe CEOs had connections who helped them get to the top (see
Exhibits 10-12).
While the American public is critical of CEO pay levels,
they are much less critical of CEO perquisites. The majority of
Americans believe it is reasonable to provide the CEO a wide
variety of perks, including a company-provided private car
or jet for work, personal financial advisor, personal security,
supplemental pension, guaranteed severance, and membership to
a local country club. Among these, the use of a private jet for work
is considered the most reasonable, and guaranteed severance and
country club membership are considered the least reasonable.
Surprisingly, the seemingly controversial issue of using a private
jet for work ranks in the middle in terms of appropriateness:
70 percent say it is always or sometimes appropriate to provide
a private jet for work travel, while only 30 percent say this perk
should never be provided (see Exhibit 13).
Opinions of CEO pay become only modestly more favorable
when respondents are given actual data about the size and
profitability of the average large U.S. company and the amount of
pay and accumulated equity that CEOs have earned at these firms.
When told that the average large company in the U.S. earned $2
billion in profit last year and its CEO was paid $12 million, only
70 percent believe CEOs are overpaid—a 16-point improvement
over the unprompted question (see Exhibit 14). When told the
average large company has a market value of $45 billion and its
CEO accumulated $50 million in company stock over their career,
72 percent say CEOs are overpaid (see Exhibit 15).
Finally, in recent years several wealthy executives have
pledged to donate large portions of their accumulated wealth to
charitable organizations, rather than leave it to family members
at their death.8
To test whether the public’s view of CEO pay is
moderated based on these practices, we asked Americans for their
opinion of CEOs who donate much of their wealth. Responses
are mixed, including equal parts admiration and cynicism. For
example, respondents are as likely to say CEOs who donate most
of their wealth are a good role model for others (34 percent) as
4. Pay for Performance... But Not Too Much Pay
4Stanford Closer LOOK series
Exhibit 1 — American Perception of CEO Pay Levels
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
In general, do you believe that the CEOs of large, public U.S. companies are overpaid?
14%
86%
0% 20% 40% 60% 80% 100%
No
Yes
8%
92%
14%
86%
19%
81%
0% 20% 40% 60% 80% 100%
No
Yes
Republican Independent Democrat
17%
83%
12%
88%
13%
87%
0% 20% 40% 60% 80% 100%
No
Yes
High Income Middle Income Low Income
5. Pay for Performance... But Not Too Much Pay
5Stanford Closer LOOK series
Exhibit 2 — CEO Pay Levels
Sources: Equilar, “CEO Pay Trends,” (July 2019); The Conference Board, The Conference Board, “CEO & Executive Compensation Practices:
2018 Edition,” (2018); and the Center for Research in Security Prices (CRSP).
CEO Pay at 500 Largest Companies
6.9 7.2 7.5 8.1 8.7
9.7 10.2 10.6
11.2
12.1
14.3 14.6
15.4 15.3
15.8
2014 2015 2016 2017 2018
25th Percentile Median 75th Percentile
CEO Pay at 3000 Largest Companies
Percentile Company Size Market Value CEO Pay Pay as % of Size
90th 300th largest $23,618 million $13.3 million 0.06%
75th 700th $8,256 million $7.8 million 0.09%
50th (Median) 1500th $2,981 million $4.1 million 0.14%
25th 2250th $1,405 million $2.0 million 0.14%
10th 2700th $945 million $1.0 million 0.11%
6. Pay for Performance... But Not Too Much Pay
6Stanford Closer LOOK series
Exhibit 3 — CEO Pay and Company Revenue
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
How much should the CEO of a large company ($25 billion in sales) be paid relative to the CEO of a
smaller company ($25 million in sales?)
17%
34%
49%
0% 20% 40% 60%
Less
The same
More
[If more] How much more?
3%
3%
11%
10%
6%
16%
32%
19%
3%
6%
11%
11%
7%
17%
29%
16%
4%
5%
12%
15%
3%
15%
31%
15%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
Republican Independent Democrat
2%
4%
9%
8%
5%
18%
33%
21%
3%
3%
12%
13%
5%
17%
30%
17%
4%
8%
14%
13%
6%
14%
29%
12%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
High Income Middle Income Low Income
3%
5%
12%
11%
6%
16%
31%
16%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
7. Pay for Performance... But Not Too Much Pay
7Stanford Closer LOOK series
Exhibit 4 — CEO Pay and Store Count (Complexity)
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
How much should the CEO of a company with 10,000 stores be paid relative to the CEO of a company
with 10 stores in the U.S.?
12%
26%
62%
0% 20% 40% 60% 80%
Less
The same
More
[If more] How much more?
2%
7%
15%
9%
7%
18%
27%
15%
5%
9%
15%
12%
3%
19%
26%
11%
6%
9%
14%
9%
5%
20%
26%
11%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
Republican Independent Democrat
2%
7%
12%
9%
7%
20%
29%
14%
3%
7%
16%
10%
5%
18%
27%
14%
8%
11%
15%
12%
4%
17%
23%
10%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
High Income Middle Income Low Income
4%
8%
15%
10%
5%
19%
27%
12%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
8. Pay for Performance... But Not Too Much Pay
8Stanford Closer LOOK series
Exhibit 5 — CEO Pay and Company Growth
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
How much should the CEO of a company that is growing and hiring employees in the U.S. be paid
relative to the CEO of a company that is shrinking and laying off employees in the U.S. (assuming they
are in the same industry and similarly sized today)?
15%
31%
54%
0% 20% 40% 60%
Less
The same
More
[If more] How much more?
3%
1%
8%
7%
7%
21%
32%
21%
2%
2%
12%
11%
5%
22%
27%
19%
3%
2%
11%
9%
8%
22%
25%
20%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
Republican Independent Democrat
2%
2%
8%
6%
10%
24%
27%
21%
2%
2%
10%
9%
5%
20%
30%
22%
4%
2%
12%
11%
7%
21%
26%
17%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
High Income Middle Income Low Income
3%
2%
9%
9%
7%
22%
28%
20%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
9. Pay for Performance... But Not Too Much Pay
9Stanford Closer LOOK series
Exhibit 6 — Compensating Founders versus Professional CEOs
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
Does the CEO who starts a company and grows it to be very large (the founder) deserve to be paid
more than the CEO of a large company who did not start the company but was promoted to the job
(not the founder), assuming they are in the same industry and similarly sized today?
[If more] How much more?
36%
64%
0% 20% 40% 60% 80%
No
Yes
4%
1%
10%
10%
9%
22%
25%
19%
3%
3%
10%
12%
5%
20%
29%
18%
5%
3%
10%
12%
10%
21%
24%
15%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
Republican Independent Democrat
3%
1%
8%
9%
11%
22%
26%
20%
3%
2%
10%
12%
7%
22%
27%
17%
6%
4%
12%
15%
7%
18%
24%
14%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
High Income Middle Income Low Income
4%
2%
11%
11%
8%
21%
26%
17%
0% 20% 40%
More than 10 times as much
10 times as much
3-9 times as much (collapsed)
2 times as much
75% more
50% more
25% more
10% more
10. Pay for Performance... But Not Too Much Pay
10Stanford Closer LOOK series
Exhibit 7 — CEO Pay and Value Sharing
Sources: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University; 2019 survey, and Rock Center
for Corporate Governance at Stanford University, “Americans and CEO Pay: 2016 Public Perception Survey on CEO Compensation,” (2016).
If a CEO creates $100 million in value through his or her management, how much of this $100 million
should be paid to the CEO as compensation?
Hypothetically, if a company is worth $100 million more than at the beginning of the year, how much
of this $100 million should be given to the CEO as compensation?
$10
$- $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
$10
$10
$10
$- $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
Republican Independent Democrat
$15
$10
$9
$- $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
High Income Middle Income Low Income
$0.5
$0 $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
$0.5
$0.5
$0.5
$0 $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
Republican Independent Democrat
$0.3
$0.3
$1.0
$0 $2 $4 $6 $8 $10 $12 $14 $16
Median
$ in millions
High Income Middle Income Low Income
11. Pay for Performance... But Not Too Much Pay
11Stanford Closer LOOK series
Exhibit 8 — CEO Pay Relative To Other Executives
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
Do you think the CEO should always be the highest paid person at the company?
38%
62%
0% 20% 40% 60% 80%
No
Yes
39%
61%
44%
56%
29%
71%
0% 20% 40% 60% 80%
No
Yes
Republican Independent Democrat
41%
59%
37%
63%
34%
66%
0% 20% 40% 60% 80%
No
Yes
High Income Middle Income Low Income
12. Pay for Performance... But Not Too Much Pay
12Stanford Closer LOOK series
Exhibit 9 — CEO Pay Relative To Other Highly Paid Professionals
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
If the CEO of a movie studio pays an important actor $10 million per year, should the CEO of this movie
production company make more than $10 million per year?
59%
41%
63%
37%
59%
41%
0% 20% 40% 60% 80%
No
Yes
Republican Independent Democrat
47%
53%
58%
42%
63%
37%
0% 20% 40% 60% 80%
No
Yes
High Income Middle Income Low Income
If the CEO of a sports team pays an important athlete $10 million per year, should the CEO of this
sports team make more than $10 million per year?
61%
39%
65%
35%
54%
46%
0% 20% 40% 60% 80%
No
Yes
Republican Independent Democrat
55%
45%
60%
40%
63%
37%
0% 20% 40% 60% 80%
No
Yes
High Income Middle Income Low Income
57%
43%
0% 20% 40% 60%
No
Yes
60%
40%
0% 20% 40% 60% 80%
No
Yes
13. Pay for Performance... But Not Too Much Pay
13Stanford Closer LOOK series
Exhibit 10 — The Contribution of Hard Work to CEO Promotion
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
To what extent do you agree with the following statement: CEOs get promoted to their jobs because
they worked harder than others.
7%
20%
34%
27%
12%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
8%
22%
33%
26%
11%
9%
20%
40%
23%
8%
4%
16%
31%
32%
17%
0% 20% 40% 60%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
Republican Independent Democrat
7%
17%
37%
26%
13%
7%
21%
33%
29%
10%
8%
23%
33%
24%
12%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
High Income Middle Income Low Income
14. Pay for Performance... But Not Too Much Pay
14Stanford Closer LOOK series
Exhibit 11 — The Contribution of Luck to CEO Promotion
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
To what extent do you agree with the following statement: CEOs get promoted to their jobs because
they were lucky.
7%
24%
37%
23%
9%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
5%
21%
38%
26%
10%
7%
27%
38%
22%
6%
7%
28%
34%
21%
10%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
Republican Independent Democrat
7%
21%
38%
24%
10%
5%
25%
38%
24%
8%
9%
29%
33%
21%
8%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
High Income Middle Income Low Income
15. Pay for Performance... But Not Too Much Pay
15Stanford Closer LOOK series
Exhibit 12 — Inside Connections and CEO Promotion
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
To what extent do you agree with the following statement: CEOs get promoted to their jobs because
they had connections who helped them get to the top
2%
6%
31%
38%
23%
0% 20% 40%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
2%
6%
27%
39%
26%
2%
5%
33%
38%
22%
2%
7%
33%
38%
20%
0% 20% 40% 60%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
Republican Independent Democrat
2%
6%
32%
37%
23%
2%
6%
30%
39%
23%
2%
7%
29%
39%
23%
0% 20% 40% 60%
Strongly disagree
Disagree
Neither agree nor disagree
Agree
Strongly agree
High Income Middle Income Low Income
16. Pay for Performance... But Not Too Much Pay
16Stanford Closer LOOK series
Exhibit 13 — CEO Perquisites
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
Is it reasonable for a company to offer the following perks to its CEO?
15%
15%
16%
19%
24%
25%
34%
43%
55%
44%
62%
46%
50%
55%
42%
30%
40%
19%
30%
25%
11%
0% 20% 40% 60% 80% 100%
Membership to local country club
Private jet for work
Guaranteed severance if they are fired
Personal security
Personal financial advisor
Supplemental pension after retirement
Private car for work
Always Sometimes Never
17. Pay for Performance... But Not Too Much Pay
17Stanford Closer LOOK series
Exhibit 14 — Company Profit and CEO Pay
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
The average large company in the U.S. earned a profit of $2 billion last year and its CEO was paid $12
million. Which of the following best describes your opinion about CEO pay at these companies?
1%
3%
26%
34%
36%
0% 20% 40%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
1%
2%
22%
34%
41%
2%
3%
27%
34%
34%
1%
4%
30%
34%
31%
0% 20% 40% 60%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
Republican Independent Democrat
1%
3%
27%
32%
37%
1%
3%
25%
36%
35%
1%
3%
26%
34%
36%
0% 20% 40%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
High Income Middle Income Low Income
18. Pay for Performance... But Not Too Much Pay
18Stanford Closer LOOK series
Exhibit 15 — company market value and ceo pay
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
The average large company in the U.S. had a market valuation of $45 billion last year and its CEO had
accumulated $50 million in company stock during their time as CEO. Which of the following best
describes your opinion about CEO pay at these companies?
1%
2%
25%
35%
37%
0% 20% 40%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
1%
1%
20%
35%
43%
2%
2%
24%
34%
38%
1%
2%
29%
37%
31%
0% 20% 40% 60%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
Republican Independent Democrat
2%
4%
26%
32%
36%
1%
1%
24%
37%
37%
0%
2%
24%
34%
40%
0% 20% 40% 60%
CEOs are highly underpaid
CEOs are somewhat underpaid
CEOs are fairly paid
CEOs are somewhat overpaid
CEOs are highly overpaid
High Income Middle Income Low Income
19. Pay for Performance... But Not Too Much Pay
19Stanford Closer LOOK series
Exhibit 16 — charitable giving
Source: Survey of 3,078 individuals, nationally representative by gender, age, race, political affiliation, household income, and state
residence, conducted in October 2019 by the Rock Center for Corporate Governance at Stanford University.
Some CEOs have pledged to donate the vast majority of their wealth to charitable organizations
rather than leave it to their children through inheritance. What is your opinion of this behavior?
(select all that apply)
12%
13%
17%
21%
22%
25%
27%
30%
31%
34%
0% 20% 40%
No opinion
They feel guilty about making so much money
They want the press to write positive stories about them
They want to deflect criticism about their pay
They deserve favorable public recognition
They want to improve their reputation
They feel strongly about addressing important social or
environmental problems
They have probably given a lot to their children already
They want to reduce their taxes
They are a good role model for others