BOSTON Feb 13 Executive pay that is
disproportionate to a company's past performance may also signal
that poor returns are coming, according to a study set for
release on Monday by shareholder activist group As You Sow.
The Oakland, California nonprofit found the average returns
for the 100 S&P 500 companies it had previously
identified as having the most questionable pay went on to
underperform the index by 2.9 percentage points over a roughly
two-year period ended on Jan. 31.
As You Sow flagged as "overpaid" a number of chief executive
officers known for high compensation despite the mixed
performance of their companies' shares over the period.
For example, Discovery Communications Inc CEO
David Zaslav received $32.4 million in 2015, according to the
company's most recent proxy filing. During the study period,
Discovery shares fell 12 percent.
Discovery representatives did not respond to requests for
Study lead author Rosanna Landis Weaver said investors could
have used the findings of a similar report from 2015 to short
the shares of companies giving their CEOs outsized rewards.
"If you have a CEO whose primary interest is increasing his
own wealth, that's not going to be good for shareholders," she
said in an interview.
High executive pay has been controversial at a time of
rising inequality. But investors routinely approve compensation
at most large U.S. companies, with boards often saying they have
linked it to performance metrics.
As You Sow used two broad measures to judge if S&P 500 CEOs
First, the group looked at factors that raised questions
about how a board set compensation, such as whether pay exceeded
that of peers, or whether it accounted for a relatively high
share of total revenue.
Second, As You Sow made a financial prediction of what each
CEO might have been paid based on shareholder returns. Companies
with the most red flags and biggest gaps between their actual
and predicted compensation were judged the most overpaid.
(Reporting by Ross Kerber in Boston; Editing by Lisa Von Ahn)