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How does bloated CEO pay maximize shareholder value? One of the great mysteries of the world

Summary:
From Dean Baker There is plenty of evidence at this point that CEO pay bears little relationship to returns to shareholders. Yet, it is an article of faith in policy circles, especially progressive policy circles, that companies are being run to maximize returns to shareholders. This is why I loved this story. According to the NYT, Chad Richison, the CEO of Paycom, had a pay package that was worth 1 million. When it came up for vote of shareholders in a say-on-pay ballot, it was voted down. The article tells readers: “Shareholders opposing the compensation won a say-on-pay vote at the company, and a majority also withheld votes from a director on the board’s compensation committee. Under Paycom’s governance guidelines, the director had to tender his resignation. The board’s

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from Dean Baker

There is plenty of evidence at this point that CEO pay bears little relationship to returns to shareholders. Yet, it is an article of faith in policy circles, especially progressive policy circles, that companies are being run to maximize returns to shareholders.

This is why I loved this story. According to the NYT, Chad Richison, the CEO of Paycom, had a pay package that was worth $211 million. When it came up for vote of shareholders in a say-on-pay ballot, it was voted down. The article tells readers:

“Shareholders opposing the compensation won a say-on-pay vote at the company, and a majority also withheld votes from a director on the board’s compensation committee. Under Paycom’s governance guidelines, the director had to tender his resignation. The board’s nominating and corporate governance committee did not accept it, however, instead reaffirming his appointment, according to a company filing.”

So we have a story where the shareholders explicitly rejected a CEO pay package and voted to remove the director most responsible for the pay package. But their votes on both are ignored and the director stays on the job and the CEO keeps the cash.

Can someone explain how this is maximizing shareholder value?

Dean Baker
Dean Baker is a macroeconomist and codirector of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.

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