Corporations are increasingly likely to use pay cuts to respond to poor CEO performance, and for good reason: In a study of 927 instances of 25% pay cuts from 1994 to 2005, a team led by Huasheng Gao of Nanyang Technological University in Singapore found that companies‘ median stock return goes from minus 8% in the pay-cut year to plus 10% in the subsequent year, and return on assets improves as well.
Corporations are twice as likely to impose sharp pay cuts as to dismiss poorly performing CEOs, the researchers say.
[Source: HBR]
