NCPA - National Center for Policy Analysis


September 25, 2008

Plenty of CEOs have reached the corporate summit with fists full of cash and mouths stuffed with cigars, but only a select few -- like Bill Gates or Lee Iacocca -- have ascended to full-blown media superstardom.  However, these "superstars" tend to succumb to the lures of celebrity culture and leave their companies to plod along in mediocrity, says the National Bureau of Economic Research.

Researchers examined the performance and compensation of CEOs who had been singled out for prominent awards -- like BusinessWeek's "Best Manager" or Forbes's "Best-Performing CEOs" -- between 1975 and 2002.  They found that while the winners' compensation shot up in the years following their prize (by 44 percent on average in the first year alone), their performance declined substantially compared with their past achievements and with the work of their peers. 


  • Firms with award-winning CEOs suffer declining performance.
  • Award-winning CEOs extract higher compensation, largely in the form of stock and options.
  • Increases in CEO compensation following awards are not shared by other top executives in the firm.
  • Award-winning CEOs indulge in tasks which provide private benefits but little (if any) firm value (writing books, sitting on outside boards and playing golf).
  • Award-winning CEOs increase earnings management and are significantly more likely to report negative earnings five years after their last award.

The effects are strongest, however, in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance, says NBER.  The results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.

Source: Ulrike Malmendier and Geoffrey Tate, "Superstar CEOs," National Bureau of Economic Research, Working Paper, No. 14140, June 2008.

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