How much are CEOs really making?

Study finds firms could be misleading investors about executive pay.

Oct. 27, 2020
Contact: Pate McCuien,, 573-882-4870

Andrea Pawliczek has always been interested in how people motivate workers and team members. As an active person and athlete, she has always tried her best to motivate teammates on the soccer field or friends while hiking on trails in her free time. In corporations, how CEOs are motivated can have a significant impact on investing decisions, and what Pawliczek found in a recent study is something every investor should know.

In her study, the University of Missouri Trulaske College of Business assistant professor and BKD Faculty Scholar found that businesses might be misleading investors through a relatively new motivational method for firm executives known as performance-vested stock awards. Performance-vested stock awards, or PVSAs, are essentially cash bonuses in the form of stock awards.

This is an image of Andrea Pawliczek.

Andrea Pawliczek is an Assistant Professor and BKD Faculty Scholar in the School of Accountancy.

“PVSAs stick two payment options together,” Pawliczek said. “The companies tell the CEOs — ‘I’m going to pay you in stock, but the number of shares you get is going to be based on how well you perform, for example how high the company’s earnings were.’ By doing this, the company is combining the two forms of performance-based pay — cash bonuses and stock awards — that have been most prevalent in the last 20 to 30 years.”

Many CEOs earn at least 50% of their total pay in PVSAs, yet firms will only provide target PVSA amounts in accounting reports. In her study, Pawliczek discovered executives were actually making, on average, 15% more than the target amount reported.

While this could be a common trend of mistakes, Pawliczek said companies may have motivation to intentionally mislead investors, because many investors utilize CEO pay to evaluate the firm. Additionally, some investors use the CEO pay data point to predict the decision-making behaviors of the CEO.

“Pay matters,” Pawliczek said. “Many investors believe that how much and how a CEO is paid has a direct impact on day-to-day operations. Depending on how an investor interprets that, it could have significant consequences for their money.”

Though these firms often issue disclosure reports that include how much the CEOs actually made, it often is quite difficult to find the information. Pawliczek said not everyone has the skills or time to gather all the information that may be needed to fully understand how much a CEO is actually making.

“The challenging thing is that the data is presented in a way that is not necessarily easily accessible,” Pawliczek said. “If I told one of my junior accounting students to find a particular piece of data, they’d struggle to find it.”

In fact, several factors make the information difficult to find, primarily due to a lack of consistency. For example, Pawliczek says that m uany firms often present the data in different ways, while also using different terminology.

To address this issue, Pawliczek recommends that firms, or regulators like the Security and Exchange Commission, develop enhanced disclosures that would help investors see the actual payment information. Information, like executive rewards, heavily influences where money is invested. Pawliczek said making information as clear as possible is always an important step.

“In the accounting field, disclosure is very important,” Pawliczek said. “People can’t make good decisions without the right information. When things get more complex, as executive compensation has, clear communication becomes extremely important.”

"Performance-Vesting Share Award Outcomes and CEO Incentives” was published in the American Accounting Association.

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