Executive Pay Should Not Be Linked To Performance

t is not unusual for 60 to 80 per cent of chief executives and other senior leaders’ pay to be tied to performance – whether performance is measured by quarterly earnings, stock prices or otherwise. And yet, from a review of research on incentives and motivation, it is wholly unclear why this is the case. If you have someone who will only do a good job based on a large bonus, you should really consider someone else. As John Cryan, the chief executive of Deutsche Bank, recently said: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day, because someone is going to pay me more or less.” Research points to five problems with performance-based pay.

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