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Tuesday, May 29, 2018

CEO's From the Outside are More Likely to be Hired and Earn More Money

CEOs are an integral part of the leadership team. They make and steer the helm of the ship and rely on their crew to keep the company moving forward. For those seeking to maximize their earning power future CEOs should consider moving to outside companies rather than being promoted within the company.

Research has shown that external hiring of CEO's earn more money than internal CEO's (Palomino & Peyranche, 2013). The reasoning is not necessarily clear but much of it may have to do with perception and negotiation power during the hiring process.

Board of directors seem to support outside CEO's and seem to increase compensation packages in the form of equity than internal CEO's. They also hire them more often making the case that any CEO who wants to earn more money should look elsewhere.

When we think about this there is a case for outside CEO's when you need to change the culture or need to do something unique. However, internal CEO's have a history and understand the organization well. This has advantages if you need to create a deep change and the CEO who would know that best is the one that comes from the inside.

Palomino, F. & Peyranche, E. (2013). Internal versus External CEO Choice and the Structure of Compensation Contracts. The Journal of Financial and Quantitative Analysis, (48), 4.

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