Total shareholder return and executive compensation – Cornell study

The link between executive incentives and total shareholder return is tenuous at best, according to recent research by Cornell University. The research analyses 10 years’ of data from the top 500 US companies, comparing the performance of those offering executives a total shareholder return plan (TSR) with those that do not. Under a TSR plan, senior people are rewarded with shares, options and cash in order to give them a direct stake in how well the shares and dividends of the employing company perform.

In the case of chief executives, a bonus based on stock performance paid under a TSR arrangement can be a significant proportion of total reward (29% on average). TSR plans are growing; just 17% of the top 500 US companies operated them in 2004, a figure which now stands at almost 50%.

The companies offering TSR have not boosted any of a number of key business performance metrics, the study concludes.

‘TSR, Executive Compensation, and Firm Performance’, by Hassan Enayati, Kevin Hallock, and Linda Barrington, Institute for Compensation Studies, ILR School, Cornell University, published October 2015. Download the report in PDF format: www.ilr.cornell.edu/sites/ilr.cornell.edu/files/ICS_TSR_Brief_Oct_15.pdf