No. And neither did the study.[1]
>We use three measures of compensation: (i) total compensation (TDC1) which includes salary, bonus, total value of restricted stock granted, total value of stock options granted (using Black Scholes), and long term incentive payouts, (ii) total cash compensation (TCC) which includes salary and bonus, and (iii) the difference between total compensation and total cash compensation (TDC1-TCC) which is meant to capture the options and incentive components of total compensation. This difference, which we call incentive compensation, is our primary variable of interest, including restricted stock grants, option grants, long term incentive payouts, and other annual noncash compensation.
[1] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572085
I suspect that the overconfidence explanation given in the article is closer to the right explanation. I was suspicious at first, but then the article gave figures about mergers. It's widely known that mergers usually don't meet expectations, so maybe overconfidence would lead a CEO to think they could escape this statistical fate.
That's not what's implied by the article: "big chunks of the compensation packages for the highest-paid CEOs come in the form of stock and stock options."
Edit: From the paper....
"To better understand the drivers of the pay effect, we decompose pay into its major components. We find that most pay components are negatively related to future abnormal returns earned by these firms, with the strongest components being the value of options granted and long-term incentive payouts. However when we add other control variables that have been shown to explain the cross-section of returns, the components largely lose their significance, with the exception of the value of options granted, which emerges as the main driver of the pay effect."
I'm not sure stock performance is necessarily a lazy indicator. Considering that Company Board's hire CEO's pretty much entirely on how well they can move this needle.
One example, their data only covers from 1994 to 2011.
PS: Direct link to the study http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572085
Here's the data. Analysis is an exercise left to the reader?
I guess what I'm trying to point out here is that while collecting data does take up most of the bulk of the work, data is meaningless without analysis and direction to inform further gathering. That's why the field of study called statistics exists. It's not just about academia points.
On the same vein, the reader should be critical of the analysis; it should not be taken as accepted truth. And the writer should try to predict and address criticisms.
Yeah well this entire study is invalidated by using stock performance as the lazy way to measure CEO performance.
Expensive CEOs are typically expensive, because they're hired to fix a company that everyone knows is going down. The riskier the company, the more the stock is expected to go worthless, the more you get paid in cash for taking on the job.
So it's expected that if you look for expensive CEOs you'll be seeing stock/accounting performance going down in short to mid term, because recoveries, whether successful or not, take time. They take years.
Also are you honestly counting CEOs who get millions in stock and $1 pay as... just getting $1 in pay? How stupid are you.