Active shareholders tie top pay to results
EXECUTIVES’ pay is increasingly linked to the performance of the companies they manage, according to a wide-ranging economic study published yesterday that dismissed public worries over “rewards for failure”.
“Today’s correlation between pay and performance is driven by bonuses and other incentive packages, which have become more important in recent years,” the Centre for Economic Performance (CEP) found.
Firms with active institutional investors are more successful at linking executive pay to results that senior management achieve, the study discovered.
“Active and large shareholders can provide an important disciplining influence on the structure of CEO pay,” it suggests.
Badly performing companies are far more likely to sack their top execs or lower their pay, the survey of 400 UK firms discovered. However, “pay cuts for failure are not as speedy as pay increases on the upside,” the report added.