High CEO pay leads to poorer business performance: study

Listed companies that performed above average for the past seven years paid their CEOs less than companies that performed more poorly, according to a study by Vlerick Business School. The researchers also found that Dutch CEOs were again not among the top earners in Europe last year, with CEOs in Germany and the United Kingdom in particular earning significantly more money.

The researchers studied the CEO income and business performance of 861 listed companies in the Netherlands, Belgium, France, Germany, the UK, and Sweden. This is the seventh time this remuneration study was conducted by Vlerick business school.

"There are a number of issues with regard to remuneration: for example, the better performing companies pay their CEO relatively less well, the share of the variable remuneration as part of the total remuneration is lower and there is a smaller spread in the bonus (the difference between target bonus and maximal bonus)", professor Xavier Baeten, research leader, said. The researchers also found that the so-called pay ration between CEO and employee is lower for companies that perform better in the long term. No connection was found between the performance of a company an whether or not long-term bonuses are awarded.

Companies based in the UK and Sweden in particular perform better than the market. Dutch companies' performance is around average, while companies listed in Belgium and France perform relatively less well.

In the Netherlands, CEOs of an AEX fund on average earned a salary of 2,940,000 euros in 2016. This includes fixed remuneration, bonus and share related pay. CEOs of an AMX fund earned an average of 1,080,000 euros, and those in charge of an AScX fund earned 785 thousand euros. This is relatively little, especially compared to CEO salaries in Germany and the UK, even after adjusting for size and profitability of the company, according to the researchers.