“Pay for Performance” Temporarily Slightly More Meaningful Than Usual

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The Wall Street Journal reports that, at least for the moment, companies with performance goals for their CEOs are actually paying their CEOs based on whether they meet those goals:

Preliminary results highlight how corporate directors, under new scrutiny from shareholders, are tying more CEO pay to corporate performance. When companies miss targets, directors are holding the line.

“The pressure from shareholders clearly has had an effect here,” discouraging boards from using their discretion to boost pay, says Robin Ferracone, executive chair of Farient Advisors LLC, a Pasadena, Calif., compensation consultant.

….That is a shift from a few years ago, compensation consultants say, when directors would often overlook missed targets and award big bonuses anyway. That dynamic has changed under pressure from investors and the Securities and Exchange Commission.

One of the worst aspects of “pay for performance” CEO compensation is that quite often it’s rigged outrageously in favor of the CEO. There’s almost no way to lose. And then, on the off chance that you do poorly anyway, the board decides that it was just bad luck and you shouldn’t be deprived of the bonus you’ve been counting on all year. So they make it up to you. After all, we’re all one big happy family on mahogany row, right?

But if the Journal is to be believed, company boards are actually holding their rock-jawed titans of capitalism to their promises these days. Good to hear. I wonder how long it will last?

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