July 29, 2022
The Boston Business Journal recently published insight featuring Charles Tharp, Professor of the Practice in Management & Organizations, discussing how to optimize executive compensation based on a study analyzing the 100 largest public companies in Massachusetts.
“Pay-for-performance,” which links a leader’s salary to the performance of the company they head up, has long been a common approach to executive compensation. But this system, like other hiring and promoting processes, can sometimes be unreliable. A study done by The Boston Business Journal looked at how well the stocks of the 100 largest public companies in Massachusetts performed in their most recent fiscal year and compared those numbers to how much they paid their chief executive.
“The date it’s granted is a mathematical estimate. When you add up that total comp number, I know about a quarter of that is real money. That’s what they got. The rest is money to come — what they might earn.”
Charles Tharp
Professor of the PRactice, Management & Organizations
The study found that compensation did not always track with gains in company value, as measured in share price. Complicating the issue is the fact that, in compensation terms, stock awards are often forecasts rather than actual values, and their value may vary significantly from those estimates when they vest.