How to create CEO pay to penalize iniquity, not simply reward virtue

 How to create CEO pay to penalize iniquity, not simply reward virtue

IF BUSINESS HAD a Moses, “Thou shalt link pay to efficiency” would be on his tablet. Settlement committees have, however, tended to stay with a narrow reading of the commandment. Whereas they reward good behaviour, hindering the bad is an afterthought. Concerned that this might lead managers to adopt a mentality of “heads we win, tails investors lose”, boards are reassessing their priorities– partially in action to pressure from regulators and investors, but likewise to shifting social winds. Completely well balanced rewards remain as evasive as the promised land. Still, measures designed to ensure that misbehavior does not pay are becoming main to the debate about how to craft employers’ wage plans.The most striking modification of current years has been the rise of the “clawback”. This is a provision in pay plans that provides the board the right (or, less frequently, a responsibility) to yank bonus offers or stock awards offered but later discovered to be unjustly made. A prototype, contained in America’s Sarbanes-Oxley reforms of 2002, needed obtaining pay from presidents and primary financial officers whose sins caused accounting restatements. The idea acquired traction after the global financial crisis. The European Union mandated recouping money from wayward lenders. In America Congress informed regulators to craft a brand-new clawback rule. While they mulled this, …
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Leo Sonhus

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