Capitolism

Independent in All Things, Neutral in Nothing

Overrewarding Underperformance

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Jason Zweig muses this week on the apparent link between high-paid CEOs and underperforming share prices.  Such a link does not come as a surprise. These CEOs live and work basically for themselves and as a consequence, don’t mind the store. Star performers, reading the situation, leave for greener pastures. Morale falls as the workforce — probably in subtle and not-so-subtle ways — gets the message that the CEO truly only cares about himself. These effects ripple, and, sooner or later, results lag industry peers.

Mr. Zweig’s observation raises a question: why do so many CEOs escape judgment on their performances? Why does mediocrity receive outsized rewards in Corporate America? Much of the blame resides with lap-dog boards, appointed by the CEO and without true power in most cases.

Maybe the better question is: what can be done about this situation? True, the market passes a kind of judgment on mediocrity. And boards have become increasingly impatient with underperforming executives.  But surely these businesses deserve better.

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Written by Russell S.

December 28, 2009 at 8:40 pm

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