Evidence is a critical guide to executive pay policy and practice

30 October 2017

By Tom Gosling 

Executive pay is an area where there’s so much data you can find a statistic that proves almost anything. But much of the analysis that makes the headlines is simply not rigorous and would not stand up to scrutiny in any peer-reviewed academic journal. Countless “studies” that become prominent in public discourse are based on selective interpretations of the data and weak methodologies. Confirmation bias - where people look for any evidence that supports their view, and filter out anything that undermines it - is endemic in this area. As result, much of what is commonly held to be true about executive pay is, in fact, incorrect, or at least severely misrepresented.This is a shame, because there’s actually a really good body of rigorous academic evidence out there on executive pay. This is one of the things I’ve learned over the last year or so as a member of the Steering Group of the Purposeful Company Taskforce, working with the highly respected Alex Edmans, Professor of Finance at London Business School. The evidence doesn’t tell you everything, and a weakness is that much of it is focussed on the US market. But executive pay is one of the most heavily researched areas of corporate governance, and there’s a lot we can learn from the very good work done in Universities and Business Schools around the world.

An example of this is our publication from earlier this year: Executive pay in a world of truthiness. This looks behind four common myths in executives pay, that often go unquestioned in the UK.

 

Myth 1: Companies ignore shareholders on pay

Myth 2: The increase in CEO pay over the last three decades is unjustifiable

Myth 3: There’s no link between pay and performance

Myth 4: Incentives don’t work

 

In fact, the research evidence doesn't support these myths, and in the publication we explain why. 

A longer version of this blog can be found as part of my regular series on LinkedIn which you can find by clicking here

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