Are Investors Getting Their Money’s Worth from High-Paid CEOs?

by Peter Cohan for Daily Finance, March 22nd, 2011.

CEO bonuses are up 30.5% in the last year, according to an analysis of 50 large companies published Friday in The Wall Street Journal. But how are investors to know whether they are getting their money’s worth? If a company has more than $75 million in stock market value, the Dodd-Frank Act now gives them a say on pay: Shareholders can talk about executive pay at board meetings — big deal! Ultimately, that alleged input is toothless unless it changes compensation practices.

On a macro level, companies are doing better than they ever have: U.S. businesses posted record profits of $1.66 trillion and piled $1.9 trillion in cash onto their balance sheets in 2010. (Of course, workers are paying the price for corporate good fortune, thanks to the nation’s 8.9% unemployment rate, a 2.6% boost in productivity, and a 1.5% drop in unit labor costs.) But the ultimate measure of whether a CEO is worth the money can only be found at the level of the individual company: How much does the CEO receive compared to the shareholder value the company created during the year. (continue reading… )

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