Study: High executive pay does not mean better management

C.E.O.’s and the Pay-’Em-or-Lose-’Em Myth

By GRETCHEN MORGENSON, NYT

CORPORATIONS are forever defending big executive paydays. If we don’t pay up, the argument goes, our sharpest minds will jump to our rivals.

Now, there are good reasons for rewarding top executives. The decisions they make are so crucial to their companies that the priority should be to hire competent people rather than scrimp on pay.

But a study released last week pretty much drives a stake through that old “pay ’em or lose ’em” line — what you might call the brain-drain defense. It also debunks the idea that companies must keep up with the Joneses by constantly comparing their executives’ compensation with that of similar companies.

This peer-group benchmark — how executive pay at one company stacks up against pay at another — is a big driver of ever-rising compensation. Boards say it helps them set pay based on what the market will bear.

Well, maybe not.

(More here.)