FOR IMMEDIATE RELEASE: June 15, 2011Contact:
Helen Chang, Stanford Graduate School of Business, 650-723-3358,firstname.lastname@example.org
7 Myths of Executive Compensation
Board experts from Stanford Graduate School of Business sayCriticism of CEO pay might be off the markSTANFORD, CA ² ³Executive compensation may be the lightning rod for shareholders in the wake of the financial crisis, but the truth about how payshould be structured is clouded by a lot of popular myths,´
,who is James Irvin Miller Professor of Accounting and Director of theCorporateGovernance Research Programat theStanford Graduate School of Business. He is
coauthor of the new book
Corporate Governance Matters
(FT Press).³Boards have been put on the defensive when it comes to comp, but the problems thatcritics are offering solutions to aren¶t that cut and dried,´ explains
, Larcker¶scoauthor and a researcher at Stanford GSB.
The 7 Myths of Executive Compensation
Larcker and Tayan¶s research exposes seven common myths around compensation:
Myth #1: The ratio of CEO pay to that of the average worker is a useful statistic.
³Dodd-Frank requires that companies disclose the ratio of CEO pay to that of theaverage worker,´ says Larcker. ³But in certain companies, high pay packages may benecessary, and in certain industries ± such as retail ± the ratio may be much higher thanin other industries, such as investment banking. Boards have to consider that how muchthey pay will have an impact on the types of people who want to take the CEO position.You don¶t want to drive talented CEOs out of public companies so that they can avoidscrutiny over how much they are paid.´
Myth #2: Compensation consultants cause pay to be too high.
³The perception is that compensation consultants are beholden to management,´ saysTayan. ³But research shows that it is not the compensation consultant or whether thecomp consultant is conflicted that drives excessive pay levels. Instead, it is thegovernance of the firm. Pay becomes too high if the board members are personal