Value at the Top: Solutions to the Executive Compensation Crisis

Along with certain athletes and pop stars, highly paid executives continue to see their pay stubs revealed and reviled in the news media. Kay, an economist and consultant with the Hay Group, contributes a thorough study of long-term compensation by U.S. corporations. Kay's theory, convincingly presented and supported, is that the most common long-term incentive, the stock option, motivates executives to pursue overly risky strategies. Kay sees stock options as having unlimited upside but no downside potential: Executives can only gain by their riskier adventures. He says the challenge of the 1990s "is to fashion new approaches to executive compensation that create wealth for executives only as shareholder wealth increases at an equal rate." To this end, Kay recommends plans for getting substantial stock into the hands of executives and directors, better compensation disclosure in corporate filings, shareholder activism, and broad direction (not intervention) by regulators. While some of the securities terminology may be beyond the general reader, this reasoned contribution to the debate over management pay is recommended for all business collections.
- Michael Stevenson, Harvard Business Sch. Lib.
Copyright 1992 Reed Business Information, Inc.