In a way, it makes sense that corporate boards would pay up for a chief executive. While glamorous on the outside (and maybe even on the inside), running a company can involve long hours and endless stress. The number of people with the experience and nerves for these roles is finite, the thinking goes, and companies have to be prepared to spend for such rare talent.
But while it can be difficult and unpopular to say no to a board issue, overpaying executives can also be a sign of weaker corporate governance, Baeten said. Overall, companies whose chief executives are paid relatively less tend to have a higher return on assets, according to a study by Vlerick.
The research looked at companies in the UK, Netherlands, Sweden, Belgium, Germany, and France, from 2010 to 2016. As market capitalization increases, executive compensation also rises.