Making executive pay work

The psychology of incentives

There is an emerging consensus, at least in Western economies, that there is something deeply flawed about the current model of executive pay. Executive pay has risen dramatically over a period when, in hindsight, the Western economic model has not been at its most successful. Surely something must be wrong? 

The debate about executive pay has focussed on whether shareholders are getting what they want, whether current levels of executive pay are acceptable to society, whether remuneration committees are doing their job properly. 

But surprisingly little attention has been paid to perhaps the most important constituency: executives themselves. 

If executive pay were genuinely motivating executives towards higher levels of performance, with benefits for all, there would surely be less controversy about the subject. But is it? Does the current model really work for the individuals it is meant to be motivating?