The Advisors' Blog

– Broc Romanek

Here’s an excerpt from a recent column by NY Times’ Gretchen Morgenson:

But calibrating how much weight a stock price should have on C.E.O. pay is tricky: A company’s stock price can be influenced by share buybacks and other financial engineering that does little to produce long-term value. Why reward a C.E.O. for that?

And sometimes a company’s stock price rises for reasons that are unrelated to its operating performance. Remember when oil prices were hitting the stratosphere a decade ago? Executives at companies like Exxon Mobil reaped enormous pay awards not just because of able leadership but also because the escalating value of the commodity propelled the prices of their stocks.

Something similar may have happened after last year’s presidential election. Call it the Trump effect on C.E.O. pay. By early November, many stocks were barely up on the year — the S.&P. 500 had eked out a mere 2 percent gain. But after the election, the overall market rallied on expectations of the incoming Trump administration’s pro-business agenda. The S.&P. 500 wound up almost 10 percent higher for 2016.

For an outsider, determining precisely how a company assesses a performance metric is difficult, of course. But the lift from the Trump effect seems to have been most pronounced among industries in which investors believed the administration’s deregulatory fervor would be greatest and thus lead to lower costs and more profits.

Also see this NY Times piece entitled “As C.E.O. Pay Packages Grow, Top Executives Have the President’s Ear”…