Are Top Executives Paid Enough? An Evidence-Based Review
Document Type Working Paper
Jacquart, P. & Armstrong, J. S. (2012). Are Top Executives Paid Enough? An Evidence-Based Review. (Working Paper Version 137).
Our review of the evidence found that the notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. Moreover, higher pay fails to promote better performance. High pay undermines executives’ intrinsic motivation, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions on stakeholders. In particular, it is not possible to relate incentive payments to executives’ actions in an effective manner. Incentives also encourage unethical behaviour. Organizations would benefit from using validated methods for hiring top executives, reducing compensation, eliminating incentive schemes, and strengthening stockholder governance.
Date Posted: 23 January 2013