What We're Reading

I don’t begrudge the $15.3 million annual salary that Texas Rangers shortstop Elvis Andrus is knocking down this year, or even the $24 million that Rangers first baseman Prince Fielder will pocket.

The same goes for the $75 million that actor Robert Downey Jr. pocketed last year — more power to these gentlemen.

Indeed, all of them possess exceptional talents, and their agents negotiated the best money deals possible for them. These deals were struck in arm’s length transactions with rational, willing buyers of their talents — a professional baseball team and movie studio in these instances.

So big payouts such as those are fine by me. I don’t care.

But the same cannot be said for the exorbitant pay packages of corporate chief executive officers, which I find distasteful on two fronts.

First, the relationship between corporate boards of directors, who set compensation levels, and their CEOs is much too incestuous to resemble anything remotely akin to free market negotiations.

Seco

In the business world, we're continually taught that high CEO pay is a necessary evil in order to attract top talent, and therefore, top returns.  Or "pay for performance" as they would have you believe. 

A recent analysis of CEO compensation data publicly released by Equilar oddly shows little correlation between the two.

This graph shows the pay of 200 CEOs and the stock returns of their companies: (click to enlarge)

The trend line—the average of how much a CEO’s ranking is affected by stock performance—shows that a CEO’s income ranking is only 1 percent based on the company’s stock return. That means that 99 percent of the ranking has nothing to do with performance at all. (The size and profitability of companies didn’t affect the random patterns.)

If “pay for performance” was really a factor in compensating this group of CEOs, we’d see compensation and stock performance moving in tandem. The points on the chart would be arranged in a straight, diagonal line.

In short, nope. Furth