Executive Investigator - Outsiders Paid More than Insiders

Tracking and Analyzing Executive Salaries, Bonuses, and Perks

Monday, August 20, 2007

A new study in executive compensation confirmed the logical thought that "outsider" CEOS receive far greater compensation than "insider" CEOs. The study, conducted by Kevin Murphy of the University of Southern California and Ján Zábojnik of Canada’s Queen’s University suggested that companies not only prefer "general managerial abilities" by outsiders more than "firm specific abilities" offered by company insiders but outsiders are often paid significantly more.

"Bottom line is that you don’t have to pay very much to promote someone internally to the CEO chair," said Mr. Murphy, in an interview. "You could probably ask that executive to take a cut and they’d agree to it just to get the general managerial experience. But you have to pay a lot to compete with other firms for the top managers, and that pay will depend on how much of a CEO’s skills are transferable across firms and industries."

Need examples? Just look at Ford's recent appointment of Boeing executive Alan Mulally or Chrysler's new CEO Bob Nardelli from Home Depot. In both of these cases, the acquiring companies are paying a hefty premium to bring them as an outsider into their business. Businesses claim it works, while others suggest that it comes as the result of a scramble following a failed attempt to succession planning. Regardless, it is definitely an interesting trent to watch that is picking up significantly as of late.

Monday, August 20, 2007 4:44:41 PM UTC