Some believe that a new CEO coincides with a reduction in Total Shareholder Return (TSR). This may be associated with a poor performance legacy from prior leadership, an incoming CEO’s lesser experience as a CEO, market uncertainty re new leadership, and/or new CEOs writing down assets as they clear the decks, coincidently (?) locking in a low share price and low 1^st year TSR at the beginning of their tenure for future LTI vesting.

Some may say, simply, that you get what you pay for. Lower pay for lesser performance.

To test this, we analysed the differences in Total Fixed Remuneration (TFR) between outgoing and incoming CEOs, as well as the 1-year TSR following the new CEO’s start.

Methodology

The analysis scope is within ASX 100 companies during the years 2020 to 2024.

• Total Fixed Remuneration (TFR) Differences: The most recent TFR of the outgoing CEO was compared to the TFR of the incoming CEO at the time of their appointment. This analysis excludes acting or interim CEOs.
• Total Shareholder Return (TSR) Rank Differences: TSR is calculated over the one-year period starting from a new CEO’s appointment date. This TSR is then ranked as a percentile relative to the TSRs of all ASX 100 companies during the same timeframe.

Total Fixed Remuneration (TFR) Differences

The percent change in TFR between incoming CEOs and outgoing CEOs is in the table below. This analysis is based on a sample of 42 ASX 100 CEO transitions.

Table 1: New ASX 100 CEO to prior CEO TFR % difference (n=42)

 

The analysis reveals that on average, incoming CEOs receive 8.6% less fixed remuneration compared to their predecessors, with a significant decrease at the 25th percentile (-18.8%), and an equal fixed opportunity at the 75th percentile.

The statistics highlight how a majority of new CEO appointments result in reduced fixed remuneration.

Total Shareholder Return (TSR) Differences

The table below summarises the TSR percentile rank statistics for companies that experienced a CEO change.

Table 2: New ASX 100 CEO TSR rank within the ASX 100 after 1 year (n=53)

 

The percentile rank statistics reveal relatively low TSR for companies with new CEOs, relative to their ASX 100 peers. The average and median percentile ranks of 44 and 41 imply that companies with newly appointed CEOs underperform in their first year compared to the broader market.

So, should shareholders bail out when a new CEO is appointed?

Due to changes in market sentiment over the 4-year period and small sample sizes within any one year, valid correlation analyses could not be applied. But the data suggests that shareholders get what they pay for.

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