Short answer NO.
We’ve seen a skyrocketing in CEO pay with no correlation to actual firm performance.
Bloomberg compared the performance of 200 CEOs organisations and their compensation
An analysis of compensation data publicly released by Equilar shows little correlation between CEO pay and company performance. Equilar ranked the salaries of 200 highly paid CEOs. When compared to metrics such as revenue, profitability, and stock return, the scattering of data looks pretty random, as though performance doesn’t matter. The comparison makes it look as if there is zero relationship between pay and performance.
One recent study, in the New York Times for example, found that pay and performance are more tightly or loosely linked depending on how a company defines “performance.”
Companies that paid CEOs based on total shareholder return, for example, actually saw their stock perform worse. So did companies that made any change in compensation metric. In other words, the link between CEO pay and firm performance appears to be highly idiosyncratic, and there’s no identifiable overall principle that governs it.
10-year Total Shareholder Return as of Dec. 31, 2015 vs. 10-year cumulative total realized CEO pay as reported in 2007-2016 proxy statements. Source: MSCI ESG Research
MSCI found a similar trend with short-term performance assessments, an over-reliance on share price-related performance measures, poor succession planning and SEC-mandated annual reporting standards being assessed as the main factors exacerbating this misalignment.
Overall the key culprit is that it demonstrates that corporate boards are almost completely unable to predict how well CEO candidates will do on the job. They insist endlessly that they’re looking for only the very top candidates—with pay packages to match—and I don’t doubt that they sincerely think this is what they’re doing. In fact, though, they don’t have a clue who will do better. They could be hiring much cheaper leaders and would probably get about the same performance.
One reason that CEO pay has skyrocketed is that boards compete with each other for candidates who seem to be the best, but don’t realize that it’s all a chimera.
Boards have no idea who the best CEO candidate is so let’s try to use money to find it.