Because of the structure of their compensation, CEOs are rewarded for share price volatility not performance. So the volatility of the past four years has served them very well indeed. To understand how, let’s model stock-based compensation in two possible worlds: A CEO whose stock has followed the S&P more or less exactly and a CEO whose stock has remained steady over the same period. Assume both took the reins on January 1, 2007 and are still there.
Author: Roger L. Martin
Source: “Harvard Business Review”
Subject: Corporate Governance