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59 BizEd November/ December 2014 WOR D B U B B LES: STU DIOGSTOCK/TH I N KSTOCK, R.I.P.: OJOGAB O N ITOO/TH I N KSTOCK WITH SO MANY lamenting the stratospheric rise of executive compensation packages, two researchers think they have a way to indicate whether or not exec- utives are worth the salaries they earn. In a recent study, Bang Dang Nguyen at the Univer- sity of Cambridge Judge Business School in the United Kingdom and Kasper Meisner Nielsen at the Hong Kong University of Science and Technology look at the unex- pected deaths of 149 CEOs, presidents, chairmen, CFOs, COOs, and vice presidents between 1991 and 2008, each at publicly traded U.S. companies. The pair compare the reaction of the stock market for five days after the deaths with the market activity five days before. The deaths of 63 of the executives—or 42 per- cent—actually triggered positive stock price reactions. The pair interprets this as an indication that these top executives received more than 100 percent of the value they created, leaving shareholders with none. For the majority of these executives—58 percent—the stock market reacted negatively to their deaths, indicating The Sudden-Death Link to CEO Pay Bang Dang Nguyen Kasper Meisner Nielsen that the market felt their loss because they had brought their companies enough value to justify their salaries. Nguyen and Nielsen also note each deceased execu- tive's "abnormal pay factor," which they define as actual compensation minus the expected compensation of the individual's replacement. They find that, on average, fairly compensated CEOs take home 65 cents—and other executives, 71 cents—of every dollar they created for shareholders. Nguyen and Nielsen suggest their research is especially relevant to regu- lators who want to take steps to limit CEO compensation. If 58 percent of top executives are compensated fairly and are doing a good job for their stakeholders, says Nguyen, "enacting regulation that punishes all CEOs alike also punishes the company, the shareholders, the taxman, and ultimately the ordinary citizen." Nguyen and Nielsen also note that companies should take great care in hiring not just their CEOs, but their entire exec- utive team. All companies should have a number of competent executives who can take the lead in a worst-case scenario, so that shareholders are not at the mercy of one person's fate. "What death can tell: Are executives paid for their contributions to firm value?" is forthcoming in Man- agement Science. students dramatically, from 30 percent to about 3.5 percent. By employing the following strategies, Taras believes other professors can achieve the same success: Require weekly peer evaluations. When students can evaluate their team members, "it works like magic, because students can restore a sense of justice on the team if someone isn't doing his share of the work," says Taras. Give the power to exclude. Students can vote on whether a free-rider can stay on the team. The possibil- ity of being voted off the team gives everyone an incen- tive to contribute, says Taras. Cultivate cultural intelligence. After testing how fac- tors such as team size, cultural diversity, or age affect the level of free-riding, X-Culture faculty have found that cultural intelligence plays the biggest role. Students who are culturally intelligent—who respect and can listen effectively to a diverse range of people—are much less likely to shirk their duties. That's why many X-Culture faculty devote up to a week in their course schedules to activities that allow students to learn about their teammates' interests, fami- lies, and other personal information. "When people know each other, they have a sense of social obligation, which increases how much they respect each other and how much they'll commit to accomplishing a common goal," says Taras. "That extra time might seem unre- lated to the project, but it makes a huge difference in the project's outcome."