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Let the Cat Have its Cream

Finally, a break for embattled CEOs—they might by paid fairly after all.

Fat cats make an easy target, especially in lean times. But the screaming headlines about CEO pay might be unfair, according to new research.

In 2012, the average large public company chief executive officer in the US hauled in $9.7 million—up nearly 7 percent from the previous year. Despite popular perceptions, says Assistant Professor of Accounting Ana M. Albuquerque, those boards trying to keep top pay in line with the market aren’t self-serving or weak. After studying executive pay, mostly from firms in the Standard & Poor’s 500 index, Albuquerque and her colleagues found that when companies benchmark high against their peers to offer greater total compensation to incoming CEOs, they do so as a reward for talent and often yield a better future return on investment. “The talent component of the peer pay effect,” write the researchers, “is positively related to future” accounting and stock performance. All of which is no fun for headline writers looking to bag a fat cat.