How much is a chief executive or chairman worth? This is a question that has been taxing investors worldwide, as they increasingly rebel against what they see as unjustified golden hellos, golden handshakes and golden just-for-managing in-between payouts. The last few weeks in the UK have seen several examples, including:
United for a Fair Economy’s report The Bigger They Come, The Harder They Fall, concluded that a huge compensation package was no guarantee of rising stock prices, in fact quite the reverse. The folly of rewarding executives for a merger is illustrated by a recent KPMG survey of large global takeovers between 1997 and 1999. It found that 31% of M&As destroyed shareholder value, with 39% producing no discernable difference.
New CEOs often have to make unpleasant but necessary decisions. Investors may understand the need for them, but employees - and sometimes customers - often do not. If such actions are combined with a large CEO handout, media criticism can corrode the corporate image and affect brand value.
