Executive compensation remains high on the agenda of governments, regulators, clients and customers. The incisive HBR article goes some way to explaining why the LTIP may not be the best way to motivate and reward corporate leaders.
Alexander Pepper spent 27 years at a large accounting firm helping client companies devise ways to compensate CEOs and other senior executives. Starting in the early 1990s, pay packages have typically included long-term equity incentive plans aimed at aligning managers’ and shareholders’ interests. But over time Pepper grew disillusioned. “I began to realize that the people we were putting the packages in place for didn’t necessarily like them very much, and the plans didn’t do what they were intended to,” he says. In the early 2000s Pepper went back to school, eventually earning a DBA; he teaches at the London School of Economics. Today he researches why pay-for-performance plans don’t work. “I was part of the system that I’ve subsequently come to say is not very effective,” he says.