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Oslo: It’s better to buy companies that pay their CEOs lower salaries.

“I see a rather big difference,” said Robert Naess, who manages $36 billion (Dh132 billion) at Nordea Bank Abp. “You shouldn’t buy the companies where the CEO make the most. It has worked over many years.”

Naess has studied how CEO pay affects stock returns. Companies that pay a relatively lower salary to their chief executive perform better the following year, according to Naess. Since 2008, the 100 companies with the lowest CEO compensation within the S&P 500 index have outperformed the 100 with the highest compensation every year except 2013.

The annualised return from 2008 to 2018 was 17.2 per cent compared with 8.4 per cent. Naess said that it may be that executive remuneration is so large that it affects the value of the company, representing a transfer of value from owners to management. It could also reflect remuneration based on outperformance, which is hard to replicate the following year, he said.

“So there’s a signal effect,” according to Naess, who said it may also reflect greedy management that is working only for their own salary or employees demotivated by a wider pay gap.

In 2018, Fortinet Inc., Advance Auto Parts Inc., Under Armour Inc. and Inc. outperformed while total remuneration for their CEOs in 2017 was low, according to the study. In contrast, Schlumberger Ltd., Halliburton Co., Ford Motor Co. Goldman Sachs Group Inc., and Morgan Stanley fell in 2018, after their leaders were well paid in 2017.

That relationship also held when looking at just the biggest or the smallest companies within the S&P 500, with lower CEO salaries seeing a higher return on their company’s stock. That provides a clear lesson for investors, according to Naess.

“Owners should be more active and tougher toward management,” he said. “It’s important to not let management have too high salaries.”