CEO Turnover and Compensation Report

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Updated: Jan 8th, 2024

Executive Summary

Employees derive motivation from different sources, depending on the level they are in an organization. Entry-level employees can be retained through attractive remunerations. However, as the study findings suggest, that is not the case with long-serving CEOs. The long durations they spent in a company are an indication of love for a job. Turnover rates of CEOs cannot be reduced through compensation. Other methods that massage their love for the job, such as value increment for shareholders, are what makes them stay.

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Introduction

Employee turnover presents the management of organizations with an enormous task. Companies dedicate enormous resources to procuring, training, and retaining talented employees. Training staff is the hardest and most arduous process of recruitment. An employee that understands critical aspects of the organization and their job is invaluable in the current competitive environment. It is desirable for a CEO to start as such an employee. Conversely, a CEO can be poached from another company. However, retaining a result-oriented and proven CEO is harder than retaining a normal employee. Organizations go to unfathomable lengths to retain CEOs. A CEO can be the difference between the continued existence and fall of an organization. In the world today, CEOs are paid astronomical salaries and allowances to ensure they remain loyal to the company.

Research area: Hypothesis, research question, contribution

In light of the above scenario, the researcher aims at finding out whether there is a relationship between high CEO salaries and turnover rates.

Research question: do salaries motivate CEOs enough to ensure they remain loyal?

Null Hypothesis: there is no relationship between high CEO salaries and loyalty.

Alternate hypothesis: there is a relationship between high CEO salaries and loyalty.

The researcher will use data for 19 of the highest-paid CEOs in America in 2011 and 2012. Loyalty will be measured using the duration the CEO has been with the organization (i.e. from the first day to date). Compensation will be measured using all manner of compensation the CEO received in the respective year. This includes salaries, allowances, stock options, etc. The researcher will use the Regression Analysis to determine the relationship. Additionally, the Researcher will determine the mean, median, and other helpful descriptive statistics of the compensation levels. Lastly, the researcher will use cross-tabulations.

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The following is the CEO data the researcher will use.

Table 1: CEO Compensation Data for 2011 and 2012

CompanyCEOCompensationYearDuration
AltriaMichael E. Szymanczyk19,820,000201122
American ExpressKenneth I. Chenault24,000,000201132
BlackRockLaurence D. Fink21,500,000201224
ChevronJohn S. Watson22,053,500201232
Coca-Cola Co.Muhtar Kent20,410,000201135
ComcastBrian L. Roberts19,850,000201122
DanaherH. Lawrence Culp Jr.21,184,600201222
DaVita HealthCareKent J. Thiry26,300,400201212
ExxonMobilRex W. Tillerson24,650,000201137
Goldman SachsLloyd C. Blankfein24,000,000201231
Marathon OilClarence R. Cazalot Jr.24,270,000201112
McKessonJohn H. Hammergren28,570,000201116
News Corp.K. Rupert Murdoch25,080,000201133
NIKEMark G. Parker33,904,200201232
Philip MorrisLouis C. Camilleri24,265,800201234
QualcommPaul E. Jacobs20,980,000201122
Time WarnerJeffrey L. Bewkes25,590,000201125
United TechnologiesLouis Chenevert21,180,000201119

Literature review/research design

There are various motivation theories that try to decipher employee needs. Maslow prioritized human needs according to importance. This article clearly captures what Maslow tried to put forth. Although the employees may be getting high salaries (the study does indicate this), they want more than just that. A good salary is basic. Self-actualization is the fact that the employees enjoy what they do. The environment should be conducive for the employees to enjoy working. They should grow, learn, and feel that they contribute to decision-making (Ahrens & Chapman 2007).

This study does not bring out many dimensions that Maslow discusses in his Hierarchy of Human Needs. It only captures the highest in his list. Therefore, we may not conclusively say that management does not include them in decision-making. The reason is that decision-making may be salaries-based. In this regard, most employees feel that employers should pay them more, as is the trend world over. The study should have expressly stated that the employees were happy with all the other things. This includes relationships, salaries, organizational culture, and the overall working environment. This would inform us whether what the author discusses is exactly the decisions that employees felt they should have a hand (Asie 2011).

Maslow’s hierarchy of needs is the most detailed look at employee motivation. It captures all the needs a person may want from work. Employers and management strive to meet all these expectations from employees. In most cases, however, it is impossible to meet all of them. The fact is that resources may not be enough. Additionally, some factors are beyond the control of the management. A question arises as to what management should do to motivate an employee whose de-motivation emanates from a situation beyond management control such as family. This is a question, which is hard to answer. Hence, it is plausible to say this theory is too generalist (Brealey & Allen 2003).

Vroom Expectancy Theory suggests that employees earn motivation from what they expect in terms of rewards. The theory bases its argument on operant conditioning. The employees look at the rewards. If the reward is good, the employees put in an effort to earn it. This effort leads to good performance. The study above does not mention the issue of rewards in the facial sense. However, employees want rewards in terms of intangible benefits. This includes special recognition, learning, and development, involvement in making critical decisions, prompt and detailed feedback, and, most importantly, listening from management.

According to this theory, if employees feel that when they perform well, they will get the above-mentioned rewards, they feel motivated to perform. The theory uses terms such as expectancy, instrumentality, and valence. Valence is the attachment that an employee feels towards the reward. Therefore, management should create such an environment to ensure these rewards. These rewards should be valuable and have the ability to generate an emotional attachment in employees. For example, fully paid one-week holidays to exceptional destinations. However, this is only true if employees are already satisfied by basics such as remuneration, safety, and cleanliness. The study mentions and concentrates on these aspects alone (Chapman, Hopwood & Shields 2006).

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Operant conditioning is an old theory that seeks to know the needs of employees. It derives from classical conditioning. Although Expectancy Theory omits the fact that employees do not really want tangible things to look forward to, the study above explains this very well. The author says that employers should seek to know what employees look forward to from them. Additionally, the environment should be conducive to enable employees to state what they want. He says that this should be the employer’s initiative. This is because leaving this responsibility to employees is challenging. The study and the theory agree on this fact. This is because employees do not have the power to structure their work in a different way (Braithwaite, Cary & Leviā€Faur 2007).

Employee Recognition Programs are systematic organizational programs that reward employeesā€™ performance. They are different in every organization. Many theories suggest that they are a source of motivation for employees. The basic principle is to recognize exceptional performance from employees. They are competitive, which means that employers should carry them out carefully because they can also be sources of hatred and sour relationships between employees. Recognition should not include promotion.

These programs include mentions in important forums by special people in the organizations. For example, the CEO, directors, or top management staff. Secondly, it involves the use of trophies. Other organizations use special titles or job names. In the study above, employees answer questions regarding recognition by their employees. Overall, the management does not score well in this department according to the study. In its recommendations, the author points out that it is paramount to consider this as a source of motivation. However, the author does not go to specifics as implementing these programs depends upon factors such as organizational culture and the size of the organization. Additionally, the study does not point out the downside of using this method to motivate employees. Organizations that use this method report better employee reception to tasks and responsibilities. It also fosters internal competition. This competition is critical because it prepares an organization to meet external competition. It also increases quality of the products that an organization produces.

Intrinsic motivation derives from enjoying a task and owning it. Unlike extrinsic motivation, an individual does not feel external pressure to encourage excellent performance in a task. He, inwardly, performs without external promises or coercion, which applies to people across the board. That is, students, employees and even family members (Erturk 2004).

Analysis/ Findings/ Discussion

Analysis

Table 2: Variables in the Regression Model.

Variables Entered/Removed
ModelVariables EnteredVariables RemovedMethod
1Duration at the company.Enter
a. Dependent Variable: CEO compensation
b. All requested variables entered.

Table 3: Regression Model Summary.

Model Summary
ModelRR SquareAdjusted R SquareStd. Error of the Estimate
1.061a.004-.0583616692.033
a. Predictors: (Constant), Duration at the company

Table 4: Analysis of Variance Table.

ANOVA
ModelSum of SquaresdfMean SquareFSig.
1Regression792822653460.6441792822653460.644.061.809b
Residual209287380182650.4401613080461261415.652
Total210080202836111.10017
a. Dependent Variable: CEO compensation
b. Predictors: (Constant), Duration at the company

Tables 2, 3 and 4 indicate the results of the regression model. The R and R squared figures indicate a relatively weak relationship between CEO compensation and duration of CEO in the company as an employee. An R squared shows that this model accounts for 4% as an explanatory tool to CEO compensation. 96% is explained by other factors not in this model.

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Table 5: Standardized and Un-standardized coefficients.

Coefficients
ModelUn-standardized CoefficientsStandardized CoefficientstSig.
BStd. ErrorBeta
1(Constant)23052752.1992981080.5357.733.000
Duration at the company27400.347111296.004.061.246.809
a. Dependent Variable: CEO compensation

Table 6: Descriptive Statistics.

Statistics
CEO compensation
NValid18
Missing12
Mean23756027.78
Median24000000.00
Std. Deviation3515346.212
Skewness1.451
Std. Error of Skewness.536
Kurtosis2.963
Std. Error of Kurtosis1.038

The mean pay for CEOs is 23756027.78 with a median of 24000000 and a standard deviation of 3515346.212 respectively.

Table 7: Cross Tabulations of CEO Compensation and Duration at Company.

CEO compensation * Duration at the company Cross tabulation
Count
Duration at the companyTotal
121619222425313233343537
CEO compensation198200000001000000001
198500000001000000001
204100000000000000101
209800000001000000001
211800000010000000001
211846000001000000001
215000000000100000001
220535000000000100001
240000000000001100002
242658000000000001001
242700001000000000001
246500000000000000011
250800000000000010001
255900000000010000001
263004001000000000001
285700000100000000001
339042000000000100001
Total21141113111118

The cross tabulation in Table 7 indicate that no CEO earns a similar compensation to another although there is a no major disparity.

Table 8: Descriptive Statistics of CEO compensation levels.

Descriptive
StatisticStd. Error
CEO compensationMean23756027.78828575.048
95% Confidence Interval for MeanLower Bound22007887.23
Upper Bound25504168.32
5% Trimmed Mean23410908.64
Median24000000.00
Variance12357658990359.477
Std. Deviation3515346.212
Minimum19820000
Maximum33904200
Range14084200
Interquartile Range4077500
Skewness1.451.536
Kurtosis2.9631.038
Scatter plot of the CEO Compensation Data.
Figure 1: Scatter plot of the CEO Compensation Data.

Table 9: Descriptive Statistics of Durations of CEO at Company.

Descriptive
StatisticStd. Error
Duration at the companyMean25.671.858
95% Confidence Interval for MeanLower Bound21.75
Upper Bound29.59
5% Trimmed Mean25.80
Median24.50
Variance62.118
Std. Deviation7.881
Minimum12
Maximum37
Range25
Interquartile Range11
Skewness-.318.536
Kurtosis-1.0351.038

Discussion

It is possible that other factors explain CEO compensation levels. However, duration of stay accounts for only 4%. Duration of stay in a company was used as a measure for loyalty. Hence, it is safe to say that the findings of this study do not negate the null hypothesis. The null hypothesis was; there is no relationship between high CEO salaries and loyalty. As a motivation tool, high compensation does not feature especially when a CEO or an executive member of the board is involved. For example, the average stay of those CEOs in their respective companies was 25.67 years. The study indicates that the entire population of the CEOs in America has been in their companies from initial employment for 22 to 29 years, at 95% confidence level. Hence, these executive members have not been in the company that long without other motivating factors in place. One such motivating factor is not compensation, the researcher concludes.

Recommendations

Employee motivation is crucial in an organization. It is crucial to motivate employees intrinsically. As authors suggest, intrinsic motivation is better than extrinsic motivation because of the following reasons.

Reduces Costs

In an organizational setting, employees that are intrinsically motivated reduce costs associated with motivation. It also reduces the need to pay off motivated employees. Intrinsically motivated employees solve problems; take initiatives without requiring managerial help or supervision (Glor 2001).

Creativity and Innovation

Intrinsically motivated people are creative. They value accomplishments and personal growth. They derive happiness in coming up with meaningful achievements in the organization. This makes them invaluable at school or in the corporate world. This is manifest in software development companies and entrepreneurial ventures. It also leads to mastery of a particular topic, profession, or hobby (Masdoor 2011).

Reduces Unfairness

Reward plans to benefit bad behavior has a bad effect on intrinsically motivated employees or students. It amounts to rewarding bad behavior instead of discouraging it. The people, who get rewards for correcting bad behavior, or avoiding it, do not understand the need to do something good from the heart. For example, if a person arrives late at work frequently and the human resource manager introduces a bonus payment for people who come early, people who had been arriving early may find it unfair. Those who had been arriving late may feel like winners. This creates a bad precedent (Glor 2001).

Creating a Habit

Extrinsic motivation may create a recurring habit. This happens when people study and take advantage of the reward system. Hence, the employee or a student creates a bad situation that undergoes corrective measures to get the reward. A study in developing countries showed that criminals and bad elements in society committed wrongs to end up in prison specifically. This is after prison systems improved and life from the outside became harder. A prison was, therefore, a safe haven with food, television, and security. This situation may replicate itself in many organizations like schools and corporate organizations (Cervone 2006).

Control of Operations

In institutions where people are extrinsically motivated, the cost of operations is high. These people need closer supervision to get the job done. Close supervision is intolerable to some people, but others grow and perform better in such situations. When employeesā€™ motivation to work comes from within, controlling them becomes unreasonable. This is because they will obviously get the job done (Cervone 2006).

Conclusion

The hullaballoo about CEO compensation levels in America recently is unfounded; at least on the basis that that is the reason they stay in a particular company. CEOs such as Kenneth I. Chenault of American Express are no longer trying to satisfy monetary needs. They enjoy their jobs and are at the self-actualization stage. Furthermore, the data suggests that most CEOs are enjoying such benefits across America. Therefore, it is a trend not a means to an end. In conclusion, CEO compensation does not work towards reducing CEO turnover.

Reference List

Ahrens, T & Chapman, C 2007, ā€˜Management Accounting as Practiceā€™, Accounting, Organizations and Society, vol. 32 no. 1, pp 1-27. Web.

Asie, D 2011, ā€˜Corporate governance: an informative glimpseā€™, International Journal of Governance, vol. 1, no. 2, pp. 206-214. Web.

Braithwaite, J, Cary C & Leviā€Faur, D 2007, ā€˜Can regulation and governance make a difference?ā€™ Regulation & Governance, vol. 1 no. 1, pp. 1-7. Web.

Brealey, M & Allen, J 2003, Principles of Corporate Finance, McGraw Hill, London. Web.

Cervone, D 2006, ā€˜Self-regulation: reminders and suggestions from personality scienceā€™, Applied Psychology: an International Review, vol. 55 no. 3, pp 333-385. Web.

Chapman, C, Hopwood, A & Shields, M 2006, Handbook of Management Accounting Research, Elsevier Science, New York. Web.

Erturk, I 2004, ā€˜Corporate governance and disappointment,ā€™ Review of International Political Economy, vol. 11, no. 4, pp. 677-713. Web.

Glor, D 2001, ā€˜Key factors influencing innovation in governmentā€™, The Innovation Journal, vol. 3 no. 2, pp 1-9. Web.

Masdoor, K 2011, ā€˜Ethical theories of corporate governanceā€™, International Journal of Governance, vol. 1, no. 2, pp. 484-492. Web.

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