Companies unworried by 'fat cat' headlines

Executive compensation remains a highly controversial subject for boards of directors, shareholders, politicians and society generally. So it should be little surprise that the media obsession with exposing excess also continues.

by Stanford Graduate School of Business Working Paper, October 2005
Last Updated: 23 Jul 2013

But does press criticism of excessive executive compensation actually change corporate behaviour? Ongoing research into media and governance by academics at Stanford Graduate of Business and The Wharton School suggests not.

Most companies don't seem to be sufficiently concerned about negative headlines to substantially change their pay practices.

Corporates may respond with relatively cosmetic changes such as altering the compensation mix - less cash, more stock options, for example. But in terms of the headline-grabbing total pay figure, media criticism appears to have had little direct impact.

Sensationalism in reporting may be part of the explanation for the lack of reaction. The study reviewed more than 15,000 articles about CEO compensation from 1994-2002 and found some evidence that the press "gets it" - that the size of company and industry pay levels were taken into account before criticising top rewards.

But many articles also highlighted outsized pay figures which included rewards earned over a number a years and other distortions such as stock option exercises.

Arguably, companies could find it easier to deflect negative criticism and defend their practices as reasonable to shareholders where reporting is less sophisticated. But it should also be remembered that playing public watchdog and acting as an agent of corporate change are not the only (or even the main) reasons for reporting on "fat cats" and corporate excess.

Press coverage is also driven by the desire to entertain and scandalise readers - which in turn fuels sensationalism. To take one high-profile example, reporting on disgraced Tyco International CEO Dennis Kozlowski's excessive pay repeatedly referred to the $6,000 shower curtain that he bought for his corporate apartment.

Source: The power of the pen and executive compensation
John E Core, Wayne Guay and David F Larcker
Stanford Graduate School of Business Working Paper, October 2005 

Review by Steve Lodge

Stanford Graduate School of Business Working Paper, October 2005 recommends

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