The False Promise of Pay For Performance: Embracing a Positive Model of the Company Executive
by James McConvill

CEO pay packets continue to skyrocket, whilst the companies they manage enjoy modest growth, no growth, or negative growth.

In Pay without Performance: The Unfulfilled Promise of Executive Compensation, prominent law professors Lucian Bebchuk and Jesse Fried put forward a ‘managerial power’ thesis to explain the “decoupling” of executive pay from corporate performance. The ‘managerial power’ thesis, which has generated a great deal of debate worldwide, contends that CEOs are overwhelmingly motivated and guided by their own self-interest, with their self-interest directly connected to their pay packet. These self-interested executives are considered to have enormous influence over the board of directors who determine executive pay, and therefore structure remuneration arrangements with these CEOs as the primary concern.

In The False Promise of Pay for Performance: Embracing a Positive Model of the Company Executive, James McConvill directly responds to the ‘managerial power’ thesis, and in particular the very negative model of the CEO (and other senior executives) that they put forward. McConvill draws upon an extensive amount of literature to explain why the emphasis on remuneration and ‘pay for performance’ is misguided. McConvill argues that the overriding motivation of CEOs in terms of their relationship with the company is not the promise of high salaries and lucrative options packages, but rather the desire to do a good job and be part of a successful and respectable company. McConvill also contends that it is not money per se that makes CEOs happy, but rather the enhancement of their “relative position”.

Based on this emerging literature on real human motivation and behaviour, McConvill puts forward the case for why it is time for a fundamental change in our approach to executive remuneration and corporate governance. Rather than waiting for the promise of ‘pay for performance’ to deliver, McConvill convincingly argues that it is time to embrace a positive model of the CEO and other senior executives.

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