Restructure Rather Than Limit Executive Pay to Benefit Shareholders
September 30, 2009
When it comes to paying America's corporate executives, the problem isn't that they are paid too much but rather how they are paid that helped lead to some of the spectacular corporate implosions in recent years, according to a University of Colorado at Boulder finance professor.
Sanjai Bhagat of the Leeds School of Business says restricting the stock and stock options in incentive compensation plans for corporate executives would go a long way to help correct the problem of executives being rewarded for short-term growth at the expense of the long-term health of their companies.
"Executive compensation plans should lead to policies that are simple, transparent and focused on creating and sustaining long-term shareholder value," Bhagat said. "The problems thought to have been generated from equity incentive compensation in the past decade, including earnings manipulation and taking on unwarranted risk, are a function of structure, not the level of the incentive payments."
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