Making executive pay work: The psychology of incentives

Talking about executive reward

Tom Gosling takes a look at how senior executives think about pay and incentives. What really motivates them?

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?

About our study

Our latest research looks at the views of 1,106 senior executives in 43 countries, within a wide range of senior roles, companies and industries. In conjunction with Dr Alexander Pepper at the London School of Economics and Political Science, we analysed the responses of our participants by gender, by age and by country.

The results reveal a number of common behavioural traits, which show clearly that executives don’t necessarily think in the way that many incentive schemes assume.