Outside CEO edge more expensive By Sarah O’Carroll
A CEO who is hired externally gets paid
on average 20 per cent more than the pre
vious incumbent, while CEOs hired from
within the company are paid less than their
predecessor.
A study by Mercer of the high CEO
turnover in 2008 revealed how it was more
cost effective for companies to hire CEOs
from within.
“This is a very good argument for mak
ing sure you have the right talent from with
in your company and that you have pro
grams in place to make sure you are
developing your talent from a pipeline with
in your organisation,” said Yolande Foorde,
executive remuneration leader, Mercer.
“Every time the board goes outside to re
cruit a new CEO they will end up paying
more and that will inflate CEO pay.”
External CEO hires also typically receive
STI (short-term incentive) or LTI (long-term
incentive) sign-on awards because they are
walking away from other equity programs
and short-term incentives from their previ
ous employers. Internal hires don’t typical
ly receive these incentives, the study found.
“An external CEO gets these incentives on
top of their inflated total fixed remuneration,”
said Foorde. “So by hiring an external CEO
it’s a double whammy for the organisation.”
