A new report from the Institute for Policy Studies points to a weak link between performance and pay among some of the highest-paid CEOs of American companies, and urges the U.S. government to push through laws that would bring chief executive pay under closer scrutiny.

The report, titled "Executive Excess 2013," found that since the 2008 financial crisis, 40 per cent of the highest-paid CEOs in the U.S. had been either "bailed out, booted, or busted" – that is, worked for companies bailed out by taxpayers, had been fired or had been arrested for illegal activities.

"We think the study really undercuts this whole idea of pay for performance," said Sarah Anderson, co-author of the Executive Excess Report, said in an interview from Washington, D.C.

"We have a corporate culture that really encourages risky behaviour that is dangerous for both shareholders and taxpayers. I think it’s widely acknowledged that the executive CEO compensation structure for Wall Street bankers was a factor that got us into this crisis," she told CBC News.

The breakdown:

  • About 22 per cent of U.S. companies with the highest-paid CEOs received taxpayer bailouts after the 2008 financial crash.
  • Eight per cent of highly paid CEOs were fired for poor performance but received golden parachutes valued, on average, at $48 million US. 
  • Another eight per cent of highly paid CEOs ran afoul of the law and paid fraud-related fines or settlements.

CEOs paid 354 times more than average American

The left-leaning think tank based in Washington, D.C., examined the records of 241 corporate chief executives over the last 20 years.

It discovered that chief executives of large companies received about 354 times as much pay as the average American worker in 2012. That gap has soared since 1993, when CEOs of big companies received about 195 times as much.

Anderson said the argument that CEOs must be lavishly compensated to ensure good performance just doesn’t hold up.

Golden parachutes crazy idea

It makes no sense that CEOs can get a big  payout when they are fired for cause, she added, pointing to cases such as former Home Depot CEO Robert Nardelli, who got a $210-million golden parachute.

"The idea that in order to attract top talent they have to offer these pay packages that commit the company to paying these huge golden parachutes, even if the CEO gets fired, seems crazy," Anderson said.

Another idea has been that by giving CEOs  stock options and restricted shares, companies are giving them an incentive to take measures to boost stock prices. That’s not working either, Anderson said.

"If stocks slump, the companies just unload a whole new boatload of stock options on their top executives  and the stock price only has to go up a little bit for them to reap a huge windfall, so it’s not aligning the interest of executives and shareholders," she said.

Anderson said companies perform better when the whole workforce is effective and that argues for a smaller gap between CEO and worker pay.

She urged the U.S. government to enact several measures of the Dodd-Frank legislation that was passed in 2010 but whose provisions have yet to be put in place.

Among the rules yet to take effect are:

  • Mandatory disclosure of the ratio between CEO and worker pay.
  • Restrictions on incentive-based compensation at financial institutions.
  • Limiting the deductibility of executive compensation, in order to prevent corporations deducting the cost of executive stock options on their tax bills.

Anderson said a lot of incentive-based compensation of executives at financial institutions encouraged risky behaviour, including making extreme trades and failing to put in safeguards against illegal activity.

"One thing we’re trying to do with the report is draw attention to the fact that that law that was signed three years ago by President Obama still has not been implemented in terms of these executive pay reforms," she said.

"The reason for that is a very intense backlash by the corporate lobby groups that don’t want to be embarrassed by this information."