Overpaid CEOs are More Likely to be Fired
By siliconindia   |   Wednesday, 28 September 2011, 00:07 IST   |    1 Comments
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The authors also believed that, when it came to CEO pay, board gets a bit deluded, believing that a CEOs excessive pay was simply a reflection of his/ her abilities. At the same time, CEOs who were overpaid were more likely to be fired because when an overpaid CEO stumbled, they are susceptible for dismissal. The researchers suggested 2 explanations for this phenomenon.
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The psychological explanation was that, when a highly-paid CEO stumbled, the board's response may be almost disciplinary and they feel that though they pay huge amount of money for their CEO, they are not getting their worth back. Secondly, the economic explanation was that, when an overpaid CEO made a mistake, the board likely takes the decision that no matter how well the CEO performs in the future, he/she is never going to be worth all the money he/she is getting.