More Complaints About Executive Pay

Executive pay is always controversial, but this article points out one of the real problems – that what people don't like is superstar pay for mediocre performance.

Many experts see the continuing rise of executive compensation-and the continuing lack of a demonstrable link to performance-as a symptom of a massive failure of corporate governance. Greater pressure from shareholders is generally regarded as the only real antidote. But critics of perceived executive excess have been frustrated by shareholder passivity, which is sometimes blamed on the short time horizons of many investors.

So is there a cure? Certainly, fuller disclosure would help, argues Lucian Bebchuk of Harvard Law School and co-author of a recent book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation". If there were proper disclosure of forms of executive pay such as pensions, supplementary pensions and deferred compensation, then it would be easier for shareholders to see whether chief executives are being rewarded for genuinely good work.

Incentives matter. But if you structure executive pay such that money is the primary incentive, you get people that are motivated first and foremost by money. In most cases, that isn't who you want. The best people usually play for the love of the game.

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I read an interview with Michael Dell years ago where the reporter asked him why he didn't just retire and buy a yacht to sail around the world. He said that any wealthy person could do that, but how many could run a multibillion dollar company like Dell? Some people just like challenges.