Introduction: Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix It
Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix It (University of California Press 2014)
15 Pages Posted: 4 Aug 2014
Date Written: July 28, 2014
Prodded by economists in the 1970s, corporate directors began adding stock options and bonuses to the already-generous salaries of CEOs with hopes of boosting their companies’ fortunes. Guided by largely unproven assumptions, this trend continues today. So what are companies getting in return for all the extra money? Not much, according to the empirical data.
This posting is an excerpt from my newly released book, Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix It (University of California Press 2014). The book explores the consequences of this development. It shows how performance pay has not demonstrably improved corporate performance and offers studies showing that performance pay cannot improve performance on the kind of tasks companies ask of their CEOs. Moreover, CEOs of large established companies do not typically have much impact on their companies’ results. Indispensable argues that companies should give up on the decades-long experiment to mold compensation into a corporate governance tool and maps out a rationale for returning to the era of guaranteed salaries.
Keywords: CEO compensation, CEO pay, management, stock option, performance pay, salary, salaries, corporate governance, public company, leadership
JEL Classification: D30, D71, D81, D84, J30, J33, J38, J39, J44, J49, K20, K22, M10, M12, M14, M51, M52
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