New Study Sheds Light on Executive Compensation vs. Shareholder Return

In their new study, "Corporate Governance, Executive Compensation, and Strategic Human Resource Management from 1992-2002," Joseph Blasi and Douglas Kruse of Rutgers University analyzed compensation for the top five executives and corporate performance in the 1,500 largest U.S. publicly traded companies. The study found that executive compensation, most of which has been in the form of options, increased in years when the stock prices of their companies went up. But when Blasi and Kruse examined whether increases in total compensation (again, primarily in options) were related to subsequent increases in stock prices or total shareholder return over the next three or five years, they found a slightly negative relationship. They found the same result when they looked at the ultimate profit made from options exercises as opposed to the Black-Scholes value at grant. The study examined what are technically called "marginal" increases. In this context, that does not mean "small," but rather is a way percentage increases in compensation results in a corresponding increases (or decreases) in company performance. A more complete summary of the study will be available on our Web site in June.