Superstar CEOs

Superstar CEOs
by Ulrike Malmendier, Geoffrey Tate  –  #14140 (CF LE LS)

Abstract:
Sounds right. From the NBER’s latest research.

Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution:  a small number of ‘superstars’ enjoy the bulk of the rewards.    We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using  prestigious business awards to measure shocks to CEO status.  We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs.  At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms.    They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books.  The incidence of earnings management increases after winning awards.  The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance.  Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.

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Angharad
Angharad
13 years ago

From my small sample of organisations I’ve worked for, I reckon it sounds right too – although my experience is not-for-profit. The more public profile someone gets in this sector, the more likely they are to get onto government advisory boards and get sucked into stuff that is external and has marginal return to the actual ‘business’ they are supposed to be running. They channel their innovation externally to keep their profile current.

Mind you, the tall poppy syndrome in Australia soon knocks the puff out of them!