Outside CEO edge more expensive

by 31 Mar 2009

A CEO who is hired externally gets paid on average 20 per cent more than the pre vious incumbent, while CEOs hired from within the company are paid less than their predecessor.

A study by Mercer of the high CEO turnover in 2008 revealed how it was more cost effective for companies to hire CEOs from within.

“This is a very good argument for mak ing sure you have the right talent from with in your company and that you have pro grams in place to make sure you are developing your talent from a pipeline with in your organisation,” said Yolande Foorde, executive remuneration leader, Mercer. “Every time the board goes outside to re cruit a new CEO they will end up paying more and that will inflate CEO pay.”

External CEO hires also typically receive STI (short-term incentive) or LTI (long-term incentive) sign-on awards because they are walking away from other equity programs and short-term incentives from their previ ous employers. Internal hires don’t typical ly receive these incentives, the study found.

“An external CEO gets these incentives on top of their inflated total fixed remuneration,” said Foorde. “So by hiring an external CEO it’s a double whammy for the organisation.”


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