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1 - The Myths and Realities of Pay-for-Performance

Published online by Cambridge University Press:  31 July 2009

Ira Kay  and
Steven Van Putten
Ira Kay
Affiliation:
Watson Wyatt Worldwide, Washington, DC
Steven Van Putten
Affiliation:
Watson Wyatt Worldwide, Washington, DC
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Summary

The work of those who criticize CEO pay, although appealing, simply does not “prove” that any particular CEO is overpaid, much less that an entire class of CEOs is overpaid. What is lacking in such work is some indication of what the CEOs would earn if the market for their services were more efficient. In the absence of evidence that the “overpaid” individuals would have been willing to accept less for their services, or that CEOs occupy some sort of monopoly position regarding executive services, it is difficult to accept the proposition as proven.

Mark J. Loewenstein, professor, University of Colorado School of Law

The perception among reporters and other [critics] that the corner suite is a sinecure with huge rewards and little accountability bears no resemblance to present reality. Fully half of the Fortune 1,000 companies have replaced their man at the top since 2000.

“Off with Their Heads,” editorial, Wall Street Journal, August 1, 2006

The full-blown mythology of a corporate America ruled by executive greed and excess consists of two related components: a failed pay-for-performance model and managerial power. The myth of the failed pay model hinges on the idea that the link between executive compensation and corporate performance never truly existed and therefore does not determine executive pay levels. The myth of excessive managerial power accepts the idea of a failed model and puts in its service the image of unchecked executives dominating subservient boards as the explanation for decisions resulting in excessive executive pay.

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Myths and Realities of Executive Pay , pp. 8 - 27
Publisher: Cambridge University Press
Print publication year: 2007

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