Stop Paying Executives for Performance

Dan Cable (top left) is professor of organizational behavior at London Business School.
Freek Vermeulen (top right) is an Associate Professor of Strategy and Entrepreneurship at the London Business School. He is the author of the book Business Exposed: The Naked Truth about What Really Goes on in the World of Business.

For chief executives and other senior leaders, it is not unusual for 60-80% of their pay to be tied to performance – whether performance is measured by quarterly earnings, stock prices, or something else. And yet from a review of the research on incentives and motivation, it is wholly unclear why such a large proportion of these executives’ compensation packages would need to be variable. First, the nature of their work is unsuited to performance-based pay. Continue reading