Management Fashion Pay-for-Performance for CEOs

Rost, Katja; Osterloh, Margit

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Management Fashion Pay-for-Performance for CEOs

Schmalenbach Business Review, Vol. 61, pp. 119-149, April 2009

32 Pages Posted: 19 May 2009

See all articles by Katja Rost

Katja Rost

University of Zurich - Institute for Organization and Administrative Science

Margit Osterloh

University of Basel; Professor (em.) University of Zurich

Date Written: April 1, 2009

Abstract

We show theoretically and empirically that Pay-for-Performance, like many management fashions, has not achieved its intended aim. Our research focuses on previous empirical studies that examine the relation between variable executive pay and firm performance on various different dates. Our results indicate that a variable CEO income contributes very little to the increase of the firm’s performance, and that CEO salary and firm performance are not linked. The example of Pay-for-Performance shows that in the long run, many management fashions do not solve the problems that they promise to solve.

Keywords: CEO Compensation, Corporate Governance, Crowding Out, Management Fashion, Pay-for-Performance

JEL Classification: G 35, O31, J41

Suggested Citation: Suggested Citation

Rost, Katja and Osterloh, Margit, Management Fashion Pay-for-Performance for CEOs (April 1, 2009). Schmalenbach Business Review, Vol. 61, pp. 119-149, April 2009, Available at SSRN: https://ssrn.com/abstract=1406928