Everyone says you should not let the CEO—who is supposed to be held in check by the board—become the chairman of the board.The Council of Institutional Investors has “long advocated” that boards be chaired by independent directors except in very limited circumstances.
GMI Ratings, a governance research firm, has identified joint CEO/Chairmen as a factor with a significant correlation to accounting risk.
And yet 61 per cent of US-listed companies over $20 billion in market cap have a joint CEO/Chairman, according to GMI Ratings CEO James Kaplan.
So what evidence is there that joint CEO/Chairman are bad? We asked GMI Ratings to see how joint CEO/Chairman compensation compares to other management structures.
GMI Ratings found it is much cheaper to pay a separate CEO and a separate chairman even when their compensation is summed.
Joint CEO/Chairman receive 80 per cent more in total compensation than mere CEOs.
Joint CEO/Chairmen receive 51 per cent more in total compensation than separate CEOs plus separate chairmen.
In short, when one person controls the two most powerful positions in a corporation, he pays himself a huge bonus. And this structure is in place in a majority of major corporations, including AT&T, JP Morgan, Pfizer, Philip Morris, Coca-Cola and Wells Fargo (which, by the way, are six corporations that received F grades for accounting risk from GMI Ratings).
“Do we really believe the combined chair is worth 80% more because they are doing two jobs. Actually they are being paid for doing both poorly,” Kaplan said in an email.
Check out the findings:
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