Book contents
- Frontmatter
- Contents
- Acknowledgments
- Prologue: The Compensation Committee Meets
- Introduction: The Battle over Executive Compensation
- 1 The Myths and Realities of Pay-for-Performance
- 2 Managerial Power
- 3 External Pressures: The New Context for Executive Compensation
- 4 End of an Era: The Decline of the Stock Option
- 5 The Future of Long-Term Incentives
- 6 Executive Stock Ownership: The Solution to the Executive Compensation Crisis
- 7 Director Compensation in the New Environment
- 8 The Compensation Committee: Creating a Balance between Shareholders and Executives
- 9 Aligning All Employee Pay to Improve Corporate Performance
- 10 International Executive Pay Comparisons
- Conclusion: The Future of Executive Compensation
- Epilogue: Back in the Boardroom
- Appendix A Legal and Regulatory Requirements for Executive Compensation Plans
- Appendix B Summary of the Regulatory and Institutional Mandates and Recommendations
- Appendix C Academic Articles on Pay-for-Performance and the Effectiveness of the Executive Labor Market
- Notes
- Index
9 - Aligning All Employee Pay to Improve Corporate Performance
Published online by Cambridge University Press: 31 July 2009
- Frontmatter
- Contents
- Acknowledgments
- Prologue: The Compensation Committee Meets
- Introduction: The Battle over Executive Compensation
- 1 The Myths and Realities of Pay-for-Performance
- 2 Managerial Power
- 3 External Pressures: The New Context for Executive Compensation
- 4 End of an Era: The Decline of the Stock Option
- 5 The Future of Long-Term Incentives
- 6 Executive Stock Ownership: The Solution to the Executive Compensation Crisis
- 7 Director Compensation in the New Environment
- 8 The Compensation Committee: Creating a Balance between Shareholders and Executives
- 9 Aligning All Employee Pay to Improve Corporate Performance
- 10 International Executive Pay Comparisons
- Conclusion: The Future of Executive Compensation
- Epilogue: Back in the Boardroom
- Appendix A Legal and Regulatory Requirements for Executive Compensation Plans
- Appendix B Summary of the Regulatory and Institutional Mandates and Recommendations
- Appendix C Academic Articles on Pay-for-Performance and the Effectiveness of the Executive Labor Market
- Notes
- Index
Summary
In the past twenty-five years, researchers have done more than seventy empirical studies of these [broad-based employee stock ownership] forms of risk sharing. Taken together, the studies provide compelling evidence for the net gain that the partnership approach can produce for a company's public shareholders.
Joseph Blasi, Douglas Kruse, and Aaron Bernstein, In the Company of Owners: The Truth About Stock Options and Why Every Employee Should Have ThemAll employees perform at higher levels when they are eligible for performance-based short-term and stock-based incentives. This common framework makes it possible to align executive pay with pay for broader employee groups and provide sharply higher pay for top performers at all levels – crucial elements in a company's success.
Unfortunately, most of the controversy surrounding executive pay in recent years has focused on ways to create a false alignment by regulating the compensation process and limiting the amounts of pay that would otherwise be set by market forces.
Critics argue that by lowering executive pay, morale – and therefore productivity – will be higher because employees will believe that they are being treated fairly. There is no empirical evidence to support this position. Studies of internal pay equity and perceptions of fairness show that employees focus on the effectiveness and fairness of the performance measurement and evaluation process rather than the actual amounts of compensation.
In other words, companies should strive to create alignment by making nonexecutive compensation more like executive compensation instead of by restricting executive pay.
- Type
- Chapter
- Information
- Myths and Realities of Executive Pay , pp. 162 - 179Publisher: Cambridge University PressPrint publication year: 2007