There is much debate on the need for high executive salaries and incentives. By and large, economists conclude from their studies that high remuneration is useful, while organizational psychologists conclude that it is harmful. Some people attribute this to a differing political outlook; economists are more conservative than those in organizational behavior and related disciplines. Because the problem is complex, one must rely on experiments rather than expert opinions. Thus, to examine this question, we reviewed findings from experimental studies. This is a common approach by organizational psychologists, but one that is seldom used by economists. Our paper, Are Top Executive Paid Enough, is the first published review of the experimental evidence on the issue of executive pay. Many experimental studies have been done. To ensure the validity of our review, we attempted to contact all authors of the studies we relied upon. Most of them responded, and we revised the paper in light of their suggestions. The findings from the various experiments were consistent with one another. Here are the main findings: 1. The notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. 2. Higher pay fails to deliver better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions. 3. It is impossible to relate incentive payments for executives actions to the performance of the firm. Incentive systems in organizations only work when the employee has full control over outcomes. 4. Incentives for executives encourage unethical behavior. Based on experimental findings, there is no controversy. High pay and performance incentives are detrimental to firms. Given the evidence, firms might want to consider taking action. You can examine the evidence in Jacquart, P. & Armstrong, J. S. (2013), Are Top Executives Paid Enough?" An Evidence-Based Review, Interfaces, 43, pp. 580-589. Jeffrey Pfeffer, a leading proponent of evidence-based management, provides an introduction, and there are commentaries on this topic by leading scholars, Christopher S. Armstrong, Edward L. Deci and Richard M. Ryan, Robin M. Hogarth and Gueorgui I. Kolev, and Derek C. Jones. The Working Paper versions of these papers and commentaries are available here:
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