When CEOs Win, So Do Shareholders: Evidence From Well-Aligned Firms

Abstract

This paper explores distinguishing characteristics related to CEO traits and the design of CEO compensation in firms where total CEO compensation levels are well-aligned with shareholder returns. It utilizes a hand-collected dataset drawn from STOXX Europe 600 firms. Adopting an exploratory, industry-relative approach, the analysis compares CEO compensation rankings with total shareholder return (TSR) rankings across companies within the same industry. Firms are grouped based on the degree of consistency between granted CEO compensation and shareholder returns. The study identifies distinguishing characteristics of firms where CEO compensation is strongly aligned with shareholder returns. These firms feature shorter-tenured and externally appointed CEOs, a more limited proportion of long-term incentives, and more targeted use of ESG criteria, with climate metrics more often linked to short-term incentives and workforce-related goals tied to long-term incentives