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Are Top Executives Paid Enough? An Evidence-Based Review

Interfaces, Forthcoming.

31 Pages Posted: 28 Jan 2013 Last revised: 1 Feb 2014

Philippe Jacquart

EMLYON Business School

J. Scott Armstrong

University of Pennsylvania - Marketing Department

Date Written: August 17, 2013

Abstract

Our review of the evidence found that the notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. Moreover, higher pay fails to promote better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions on stakeholders. Relating incentive payments to executives’ actions in an effective manner is not possible. Incentives also encourage unethical behaviour. Organizations would benefit from using validated methods to hire top executives, reducing compensation, eliminating incentive plans, and strengthening stockholder governance related to the hiring and compensation of executives.

Keywords: bonus; cooperatives, corporate governance, democracy, employee selection, executive compensation, incentives, index methods, judgmental bootstrapping, Mondragon, motivation, pay, performance, stakeholders

JEL Classification: G30, G34, M0, M52, P13

Suggested Citation

Jacquart, Philippe and Armstrong, J. Scott, Are Top Executives Paid Enough? An Evidence-Based Review (August 17, 2013). Interfaces, Forthcoming.. Available at SSRN: https://ssrn.com/abstract=2207600 or http://dx.doi.org/10.2139/ssrn.2207600

Philippe Jacquart (Contact Author)

EMLYON Business School ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

J. Scott Armstrong

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-5087 (Phone)
215-898-2534 (Fax)

HOME PAGE: http://marketing.wharton.upenn.edu/people/faculty/armstrong.cfm

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