Lessons learned from CEO pay and market cap performance in the mining and metals industries: Implications for the board of directors and for corporate governance

Abstract

CEO pay was correlated with market capitalization performance. Three simple correlation tests of 2013 total CEO pay with market capitalization destruction over the approximate three and one-half year period, January 2011 through July 2014, yielded a 66% weighted average moderate correlation for thirty-four companies. The total market cap destruction for these companies was an estimated $120.1 billion with total CEO pay of $224.6 million. Thus, total market cap destruction was approximately 535 times greater than total CEO pay. During this approximate three and one-half year time period, the S&P 500 Index increased 51.8%. Our simple correlation tests do not imply any causality. However, some corporate governance researchers (Kostyuk, 2014 and Hilb, 2008) have advocated: “Pay for Performance, not Presence” which could include such correlations as part of executive compensation packages from Board of Directors’ compensation committees. Claw-back provisions could be used for market capitalization destruction in evolving executive compensation packages.