Science: CEOs Are Such Bullshit

February 20, 2017

“CEO” is a term for someone who is paid more money than you because they are able to project a large degree of confidence about their wrong ideas. Don’t take my word for it—it’s science!

The duties of CEOs vary somewhat from company to company, but they all have a few things in common:

They are paid an astounding sum of money, relative to the people who do the actual “work.”

They justify their salary by taking credit for everything that goes right and blaming everything that goes wrong on rogue employees or uncontrollable “market forces.” And,

They are okay to look at.

The third point is very important. CEOs need not have model looks, but they do need to have a reassuring look, like airline pilots. When you watch a CEO speak, you must think to yourself, “This middle-aged white male has everything under control.” Whether or not that is in fact the case is a minor, secondary point. There are underlings for that.

Want some science? Here is the science: via the WSJ, a new study published in Management Science, your favorite magazine, shows that blind testing reveals that real life CEOs just have that look—the look that matters. Bolding ours:

Our experiments, studying the facial traits of CEOs using nearly 2,000 subjects, link facial characteristics to both CEO compensation and performance. In one experiment, we use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent.

In a third experiment, subjects numerically score the facial traits of CEOs. We find competent looks are priced into CEO compensation, more so than attractiveness. Our evidence suggests this premium has a behavioral origin. First, we find no evidence that the premium is associated with superior performance. Second, we separately analyze inside and outside CEO hires and find that the competence compensation premium is driven by outside hires—the situation where first impressions are likely to be more important.

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