Are CEOs compensated commensurately with their companies' performance?

What will be an ideal response?

Answer: There are several measures of corporate performance such as sales, profits, and market value. It is difficult to answer just yes or no because the evidence is mixed based on decades of academic research and the compensation of executives relative to company performance. Therefore, a simple statement cannot be made about the relationship between CEO pay and company performance. Shareholder returns most often describe company performance, but there are complex forces beyond the control of CEOs that may influence shareholder returns. For example, in the pharmaceutical industry, substantial investments in research to identify promising medicines require trial and error before a promising outcome occurs in the laboratory. Then lengthy clinical trials that span years may show that the new medication does not cure an illness for which it was created. Such public failures often result in lower confidence in the company, which often translates into lower shareholder returns. In the intervening time, the company hires a new CEO who was not involved in the decision to pursue the failed initiative, raising the question whether the CEO should receive lower compensation following a decline in shareholder returns. Nevertheless, some companies do reduce CEO pay when company performance does not meet a preestablished standard.