I was pointed to the data visualization website Verifiable by this blog post. I then came across a chart of total CEO compensation against stock performance, showing little correlation between performance and pay.
I snagged the data and made some changes. Since stock performance is highly variable, and CEOs probably don't have all that much control over one-year stock returns, I was curious to see if CEO compensation was related at all to the size of the company. After all, it's reasonable that boards of directors will consider the difficulty of CEO's job to increase as the company grows larger and its operations more complex, and so pay more to entice top talent. Market cap may not be the best proxy for size and complexity, but it's pretty good.
I excluded Apple, where Steve Jobs makes $1 a year, and took the log of both total compensation (including stock options and grants) and total cash compensation, and compared them with the log of market capitalization. As you can see, there does some to be a weak correlation in both charts. The correlation between total compensation and market cap is 0.36 and that drops to 0.33 between cash compensation and market cap.
<a alt="verifiable.com" title="verifiable.com" href="http://verifiable.com/charts/2684"><img style="border:0;max-width:800px;max-height:600px;" src="
" /></a>So what have we learned? Not that much. There's probably an extensive academic literature on this subject that I haven't looked at. But this does suggest that CEO compensation isn't a total black box.
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