Professors at the Carnegie Mellon University Tepper School of Business reveal a study that shows firm executives are paid an appropriate amount of money for their jobs. Professors George-Levi Gayle and Robert Miller lead the study.
Miller says there are two overall conclusions. First, executive pay, when adjusted for risk and size, increased at the same rate as national income over the last 60 years. Also, if executives were not paid in a way that varied with a firm’s profits, then those firms would lose significant value over time.
With variable compensation, most executives in turn invest that money into firm security. Miller says most people don’t think about fluctuation. For example, if the stock of a company goes up a long way, then that would increase the executive’s wealth by a lot. If the stock goes down, they do not only suffer a loss on that, but that loss could easily exceed all forms of compensation in any one year.
The study measured executive pay by asking how much executive wealth changed by taking the job they took, in addition to looking at wages, bonuses, stock grants and stock options.