Trading techniques... awards and titles
A large salary and soaring share options aren’t the only rewards that business leaders can receive for doing their job well. Titles, awards and other honours also frequently come with financial success.
For example, in the 2021 New Years’ Honour List around 10% of UK honours were given in recognition for services to business and the economy. Even in countries that don’t have a formal awards system, many business publications and organisations hold annual awards ceremonies for those who they feel have done an outstanding job.
However, while the awards may leave the executives with a glow of satisfaction, some people argue that they are a signal to sell. Since titles and awards are usually given on the basis of past performance, rather than future potential, they may signal that a company’s growth has peaked, in a similar way to the infamous “curse of the magazine cover” – the idea that by the time a business, trend or theme appears on the front of a mainstream magazine, the bull run is very likely to be nearing its end .
An even more cynical interpretation is that many awards end up distorting the behaviour of managers. For example, a manager might decide to pursue unprofitable acquisitions just to maintain or boost their public profile. Receiving an award might also discourage a manager from making financially profitable, but politically unpopular decisions, such as reducing the workforce to cut costs.
Studies seems to confirm that CEO awards and titles are indeed bad news. A 2016 study by Konrad Raff of the Norwegian School of Economics and Linus Siming of Bocconi University found that after the abolition of knighthoods and damehoods in New Zealand in 2000, both the share price and the profitability of firms run by former knights outperformed the wider market, but then underperformed when they were reinstated nine years later. Similarly, a 2009 study by Ulrike Malmendier of the Haas School of Business and Geoffrey Tate of the University of Maryland found that the US firms whose CEOs won a major award lagged the market by as much as 26% over the next three years.