The Fat Cat Theory: Understanding Executive Compensation and Performance

The fat cat theory highlights the potential conflicts of interest between top executives and the company they lead. The term is often used to describe CEOs who prioritize their own interests over the interests of the company and its shareholders.

This type of behavior can have negative consequences for the company, including decreased profits and reduced employee morale. For example, in the case of the former CEO of Disney, Michael Eisner, his high salary did not align with the company's financial performance. While he received a large sum of money, the annual income of the company decreased, indicating that his priorities were not in line with those of the company.

The fat cat theory serves as a reminder that executives should be held accountable for their actions and that their compensation should be tied to the performance of the company. Companies should have a transparent system for determining executive pay and ensure that it aligns with the long-term goals of the company and the interests of its shareholders.

In conclusion, the term fat cat refers to executives who receive high salaries but do not perform well. This type of behavior can harm the company and its shareholders, and it is important for companies to have a system in place to prevent it.