The Advisors' Blog

– Broc Romanek

Here’s an excerpt from this WSJ article:

A newly published study of shareholder letters and executive compensation finds that CEOs who name shareholder value as their primary objective in investor letters received larger increases in their annual pay packages than chiefs who cited other priorities, such as improving customer loyalty or increasing market share. The study, recently published in the Journal of Management Studies, examined 2,373 letters to shareholders from 590 CEOs of S&P 500 companies between 1998 and 2005. Authors Taekjin Shin of San Diego State University and Jihae You of Louisiana State University determined that corporate leaders who explicitly communicated their interest in maximizing shareholder value received higher annual compensation increases. The pay packages included salaries, bonuses, the value of stock-option grants, restricted stock grants and long-term incentive plans.

After controlling for company size, stock performance, the chief executive’s tenure and other factors, CEOs could count on an additional $116,000 for every mention per 1,000 words of boosting the company’s share value. The explanation isn’t simply that CEOs are ingratiating themselves to corporate boards and compensation committees, Mr. Shin said. Instead, the leaders are using language that signals the appearance of competence and control.