Brian G. M. Main on the Question of Executive Pay

Abstract

Current executive compensation appears to be structured suboptimally in many ways. This is partly the outcome of the inefficient use of stock options, which are undervalued by both executives and the board; the overreliance on extrinsic versus intrinsic motivation, and structural weaknesses in the compensation negotiation process. In empirical research and in the practical design of compensation, a more holistic approach is needed – one that takes into account the underlying assumptions of design, the prevalent institutional influences, and the psychology of human motivation.