The obvious reaction to a CEO making $20 million, $50 million or $100 million is:
That’s ridiculous.
But that’s actually the least interesting part.
The salary isn’t big enough to explain the shareholder damage.
One study looked at companies with unusually high CEO compensation after adjusting for company size and performance.
The top 10% of those companies went on to produce 7.84% to 11.45% negative abnormal returns over the following three years.
The average annual abnormal shareholder wealth loss was about $920 million.
Average CEO compensation?
$22.97 million.
That’s roughly $40 of shareholder wealth lost for every $1 of CEO compensation.
So the paycheck isn’t the $920 million problem.
It’s the warning sign.
The study found the effect was stronger when highly paid CEOs were also more overconfident and corporate governance was weaker. Those CEOs were more likely to make value destroying investments and acquisitions.
And the M&A numbers are ugly.
About 19% of the high excess pay CEOs did an acquisition in a given year, versus about 13% among the low excess pay group.
The acquisitions by the high pay group produced roughly -1.38% abnormal returns over three years, compared with about -0.51% for the low pay group.
So the problem isn’t:
“We paid the CEO too much.”
It’s:
“We paid the CEO too much, then gave him more confidence to spend the shareholders’ money.”
That’s a completely different problem.
And it matters right now because CEO compensation is getting ridiculous again.
Average S&P 500 CEO pay hit $22.8 million in 2025, up 21% in one year. Excluding Elon Musk, that’s already a record.
Welltower’s CEO Shankh Mitra had an award worth up to $821 million.
Goldman Sachs gave David Solomon $118.9 million.
And Musk’s Tesla package was valued by the company at $158 billion.
Maybe all of these CEOs will earn every dollar.
But I’d be looking at something else in the proxy statement.
What are they doing with the money after the board tells them they’re worth a fortune?
How many acquisitions?
How much overinvestment?
How much debt?
How much dilution?
How many projects that management absolutely insists will transform the company?
Because the research suggests the giant paycheck can be less of an expense line and more of a red flag for what management is about to do with shareholder capital.
That’s a much more useful thing to watch than arguing over whether $20 million or $100 million is “too much.”