Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix ItProdded by economists in the 1970s, corporate directors began adding stock options and bonuses to the already-generous salaries of CEOs with hopes of boosting their companiesŐ fortunes. Guided by largely unproven assumptions, this trend continues today. So what are companies getting in return for all the extra money? Not much, according to the empirical data. In Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix It, Michael Dorff explores the consequences of this development. He shows how performance pay has not demonstrably improved corporate performance and offers studies showing that performance pay cannot improve performance on the kind of tasks companies ask of their CEOs. Moreover, CEOs of large established companies do not typically have much impact on their companiesŐ results. In this eye-opening exposŽ, Dorff argues that companies should give up on the decades-long experiment to mold compensation into a corporate governance tool and maps out a rationale for returning to the era of guaranteed salaries. |
Contents
Introduction | 1 |
PART ONE WHATS WRONG WITH THE DOMINANT THEORIES? | 15 |
The Puzzles of CEO Compensation | 17 |
The Corporate Personality Myth | 27 |
Market Mythology | 60 |
Incentives Mythology | 91 |
PART TWO WHATS REALLY GOING ON? | 121 |
Performance Pay Mythology | 123 |
Causation Mythology | 150 |
Predictability Mythology | 170 |
PART THREE HOW CAN WE BEST REFORM THE SYSTEM? | 199 |
Alignment Mythology | 201 |
Moving Forward | 229 |
Notes | 267 |
Other editions - View all
Common terms and phrases
Altruism amount argue argument AutoZone average Bebchuk and Fried behavior benefits bonus bonuses candidates CEO compensation CEO pay CEO talent CEO's chapter company's compensation packages Corporate Governance corporate performance corporation's costs decades decisions direc directors earn Economics effect efficient empirical employees evidence example executive compensation executive pay expected explain firm formance Frydman goals groupthink growth hire holders Ibid illusion of control illusion of validity impact important incentive increase interests intrinsic motivation investment investors Jenter Journal Kevin Murphy Law Review leader leadership less managerial power managers measure million Murphy norms pay packages Pay without Performance percent performance pay perhaps person profits proxy public companies reason restricted stock rewards risk role salary scholars share price shareholder primacy social cascade stakeholder theory stakeholders Steve Jobs stock options stock price strategy student studies theory tion tive tournament tournament theory vote workers