'Self-serving myth' behind high CEO pay debunked

The poaching of top executives by foreign companies is too insignificant to justify the rising executive pay, a study by a think tank shows

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The study was carried out by the independent think-tank High Pay Centre, which analyzed chief executive appointments at companies in the 2012 Fortune Global 500 rankings of top companies in the world.

It showed that, of the 489 companies for which histories of executive careers were available, only 4 people had been poached while working as CEOs of another company in a foreign country, all 4 by Western European companies. Data for 11 CEOs, all Chinese, were not publicly available.

“Cross-border poaching of current CEOs therefore amounts to 0.8% of total CEO appointments in the Fortune Global 500,” the study said.

It also showed that not one CEO was appointed externally from outside the country where the company was based in North America, Japan, Latin America and Eastern Europe and that 80% of CEO appointments in the world’s largest companies were internal promotions.

Pay consultants, headhunters and even companies have long argued that the high pay awarded to executives was justified by the fear that they would migrate towards corporates anywhere in the world with the financial muscle to offer them more money and that there was a tight global pool of talent from which to fill the top jobs.

“The global talent pool is, in fact, a drop in the ocean. These findings debunk the myth about internationally mobile chief executives flying around the world for new roles. This is one of the reasons for the sharp rises in executive pay in the past decade,” Deborah Hargreaves, director of the High Pay Centre, said in a statement.

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If it were true that CEOs were motivated only by how much they were paid, then CEO compensation packages around the world should be aligned to those offered in the US, where remuneration is the highest, the study argued.

But the research showed that not one CEO out of the 142 North American companies in the Fortune Global 500 was hired externally from abroad, and this means that companies elsewhere in the world should “not pay too much attention to CEO salaries in North America.”

“Huge executive pay packages can no longer be justified on the basis that there is a competitive international market for chief executives,” Hargreaves said.

“For the vast majority of these top executives, their priority is to develop the company and its people, and turn the business into a world leader. Shareholders should be wary of the person who is incentivized purely by the bonus – as this is what led us into the financial crisis we see today.”

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