M. Wilson, an executive at enterprise software maker Oracle, once said of his CEO Larry Ellison, “The difference between God and Larry Ellison: God doesn't think he's Larry Ellison.”
According to a paper published in The Leadership Quarterly, hubris like Ellison’s can pay off. Last year he was the highest-paid CEO in the world, banking $77 million worth of stock-based compensation, according to The New York Times. Some 65 CEOs made more than $20 million in 2013, says the paper, entitled “Narcissistic CEOs and executive compensation.” The authors, Charles A. O’Reilly III, a management professor at Stanford business school, a grad student and a professor at U.C. Berkeley’s Haas School of Business and a professor at Santa Clara University’s business school, contend that bosses who exhibit narcissistic traits like dominance, self-confidence, a sense of entitlement, grandiosity and low empathy, tend to make more money than their less self-centered counterparts, even if the lower-paid CEOs exhibit plenty of confidence. Of the narcissists, says O’Reilly in a statement, “they don’t really care what other people think, and depending on the nature of the narcissist, they are impulsive and manipulative.”
O’Reilly and his colleagues surveyed employees in 32 large, publicly traded tech companies in order to glean which bosses exhibited narcissistic traits. They focused on the tech industry because it attracts people who are convinced of their own vision and are willing to take risks. “In places like Silicon Valley, where grandiosity is rewarded, we almost select for these people,” says O’Reilly.
The Definitive Careers Guide From Forbes encompasses every aspect of the job hunt, from interview to promotion. Written by some of Forbes' best careers and leadership writers, it is available now for download.
The researchers asked employees to fill out questionnaires rating whether the bosses were self-centered, arrogant, and conceited. The employees also took something called a Ten Item Personality Inventory (TIPI) about their bosses. Plus the researchers combed CEOs’ shareholder letters and earnings call transcripts for the frequency of self-referential pronouns like “I.” Narcissists tend to hold forth about their own opinions in such statements, rather than deferring to their teams.
According to the paper, boards frequently offer to go along with CEO pay contracts even when the bosses are not performing better than their peers. Founders like Ellison make more money than narcissistic bosses who didn’t start their companies. “From the board member’s perspective you’ve got this person who is quite charming, charismatic, self-confident, visionary, action-oriented, able to make hard decisions (which means the person doesn’t have a lot of empathy) and the board says, ‘This is a great leader,’” notes O’Reilly. All of those attractive qualities can obscure a narcissistic boss’s darker traits.
What’s more, the CEO often gets involved in hiring the very compensation consultant who sets CEO pay, a clear conflict of interest.
Not surprisingly, according to the paper, the longer narcissists are in charge, the higher their compensation rises relative to their teams, in part because they are close to their boards and can make personal appeals to increase their pay packages.
None of this is good for company morale, as the pay divide widens between the top boss and the rest of the team. Employees feel less satisfied and they start leaving. Narcissistic bosses can also fire dissenters. “[W]hile narcissists may be less likable, their sensitivity to criticism and low empathy may help them eliminate those who might challenge them or fail to acknowledge their brilliance,” write the researchers.
The paper also notes that highly paid, narcissistic CEOS don’t tend to perform better than their lower-paid, less narcissistic counterparts, which squares with research I wrote about last month, showing that across the board, the highest-paid CEOs are the worst performers. Narcissistic bosses also have little guilt about firing people and, I would venture, don’t readily acknowledge their own failings.
O’Reilly recommends that people who work for narcissists flatter their bosses, rather than challenge them. “Be prepared for them to take credit for your ideas,” he says. “That’s the name of the game,” he adds, referring to a book by Michael Maccoby called The Productive Narcissist: The Promise and Peril of Visionary Leadership.
The paper also notes that high pay for narcissistic CEOs could be driving up pay for other top bosses, since CEO compensation is influenced by peer-firm comparisons.
The authors allow that some narcissistic CEOs can do an outstanding job for their companies. Though hit hard by the dot com bust in 2001, Oracle now has a market cap of $180 billion. Not bad for a narcissist founder.
