Pay without Performance presents a disconcerting portrait of executives’ power to influence their own pay -- and of the structural defects in corporate governance that give them this power. As this book demonstrates, boards have persistently failed to negotiate at arm’s length with the executives they are meant to oversee. Lucian Bebchuk and Jesse Fried give a richly detailed account of how pay practices—from option plans to retirement benefits— have decoupled compensation from performance and camouflaged both the amount and performance-insensitivity of pay. They show that flaws in pay arrangements and the pay-setting process have been widespread and systemic. These problems have hurt shareholders both by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers’ incentives.
By studying pay arrangements, Bebchuk and Fried open a window through which they identify some basic problems with our reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make boards more independent of executives as recent reforms attempt to do; rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.