Media coverage of a CEO in a majorbusiness publication has boosted the executive’s salary by as much as $1.4million in part because that coverage affects how non-executive or”outside directors” evaluate the CEO, according to a study from theUniversity of Colorado at Boulder Leeds School of Business.
The Sarbanes-Oxley Act of 2002resulted in more outside directors on corporate compensation committees underthe assumption that they were more impartial assessors of CEO performance.Research by Markus Fitza, a doctoral candidate at the
“Non-independent boardmembers, such as members who are also firm employees and CEOs themselves, aremore likely to rely on their daily experience of the CEO’s contribution ratherthan on external sources such as newspaper articles,” Fitza said inexplaining the difference.
The research found that onaverage, an article featuring a CEO in a major business publication increasedthe value of the stock options and bonus the CEO received by more than$600,000. If the board had a majority of insider members, that impact wasreduced by about $330,000.
CEOs increased their salaries byas much as $1.4 million with a profile in a major business publication, theresearch found, and a profile did not have to be flattering to produce a salaryboost.
“As CEOs appear in picturesand headlines of major business magazines, they are more likely to be perceivedas legitimate and efficacious,” Fitza said.
The study, which examined 3,500large, publicly traded companies from 1997 to 2005, also found that the boostin compensation generated by media coverage had no correlation to theperformance of the company.