Management Fashion Pay-For-Performance For CEOs

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Executive Summary

The authors show theoretically and empirically that Pay-for-Performance, like many management fashions, has not achieved its intended aim. The paper focuses on previous empirical studies that examine the relation between variable executive pay and firm performance on various different dates. The results indicate that a variable CEO income contributes very little to the increase of the firm's performance, and that CEO salary and firm performance are not linked. The example of Pay-for-Performance shows that in the long run, many management fashions do not solve the problems that they promise to solve.

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