SDSU Professor Reveals How CEO’s Get Pay Raises

SDSU Professor

Have you ever wondered if there were “magic words” that could help get a pay raise? Well, if you’re a CEO who’s dealing with shareholders that might be the case. Taekjim Shin, Management Professor at San Diego State’s Fowler College of Business, discovered that the words “shareholder value” could increase a CEO’s yearly compensation by an average of $116,000.

The key is how you use the term, “shareholder value.” Shin, alongside co-author Jiahe You, found that words should be repeated at least once every 1,000 words within written communication to board members. And the words don’t necessarily have to be drafted by the CEO. Even when someone else crafted the message, as long as the CEO signed it, it resulted in a pay increase.

“Although the CEOs may not necessarily write letters personally, once they are signed by the CEO and appear in a public domain, they are widely considered as messages from the CEO,” the study revealed.

The effectiveness of the words “shareholder value” is due to a variety of factors including time. Most boards of directors are composed of busy people. Shareholders generally hold positions at other organizations or serve on multiple boards, meaning they have little time to monitor CEO behavior and value. In these cases, the shareholders rely on information provide by CEO letters and other communication.

“Our study indicated when the CEO’s use of language is shareholder-friendly, it may leave an impression of management competence and effectiveness. Directors with this impression often end up granting a more generous pay package to the CEO,” Shin explained in an SDSU news release.

Unfortunately, the language could also work against the CEO. If similar shareholder-friendly language was used to speak badly of a CEO or to indicate poor company or stock performance, the board’s confidence could be undermined. In the end, no matter the motivation, to get things done shareholder-friendly language is the key to success.

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