CEO pay based on self-serving myth

2013

The argument that stratospheric levels of CEO pay are justified by the need to compete for top talent in a global marketplace is nothing more than a "self-serving myth", a new report claims, with foreign poaching of CEOs accounting for less than one percent of CEO appointments among the world's top 500 companies.

A new study of international CEO mobility by the UK-based High Pay Centre has found that just four chief executives out of 489 were poached while they were CEOs of another company in a foreign country – representing just 0.8 percent – while only one CEO was poached while heading up a company on another continent.

The report, "Global CEO Appointments: A Very Domestic Issue", examined CEO appointments among the Fortune Global 500, finding that eight out of 10 CEO appointments are made internally and a mere 6.5 percent (32 in total) of current CEOs were poached from another company while serving as a CEO.

In North America, Japan, Latin America and Eastern Europe, no CEOs were appointed from outside the country in which the company is based. Moreover, only 14 CEOs were poached from another country while occupying a role beneath CEO (11 in Europe, one in China, one in South Korea and one in Australia). This cross-border poaching account for just 2.9p percent of total CEO appointments.

Director of the High Pay Centre, Deborah Hargreaves, said that the findings exploded the myth that CEOs were drawn from a highly mobile competitive global talent pool.

"The global talent pool is, in fact, a drop in the ocean. These findings debunk the myth about internationally mobile chief executives flying around the world for new roles."

"Huge executive pay packets can no longer be justified on the basis that there is a competitive international market for chief executives," she added.

"For the vast majority of these top executives, their priority is to develop the organisation and its people, and turn the business into a world leader. Shareholders should be wary of the person who is incentivised purely by the bonus, because this is what led us into the financial crisis we see today."