Mendoza School of Business

CEOs Who Are Overpaid Are More Likely To Be Fired

Published: September 14, 2011 / Author: Kimberly Weisul

In an era of near constant downsizing, there are at least two conflicting ways to look at raises.

1. It’s important to be paid what you’re worth.

2. Pushing for a big raise is pointless. Even if you succeed, being the highest-paid, or among the highest-paid, in your group no longer means you’re performing at a level that will soon earn you a promotion. It means that when the next round of cutbacks come, you might as well have a target on your back.

Now, a new study from four researchers provides some support for the second point of view, using data from a group of extremely well-paid but also extremely sought-after employees-CEOs. The study’s authors, Adam J. Wowak of the University of Notre Dame, Donald C. Hambrick of Pennsylvania State University, and Andrew D. Henderson of the University of Texas at Austin, examined the relationship between CEO pay and performance over a decade. They looked at 590 big company CEOs who had tenures of at least four years between 1996 and 2005.

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Topics: Mendoza