The financial crisis has focused attention on executive remuneration, causing renewed outrage at the high rewards paid out to managers of struggling companies, writes
Chris Thomas, a consultant at Egon Zehnder International, Melbourne, in an article published in the
Australian Financial Review. The idea of encouraging executives to perform based on remuneration structures that align their interests with those of their shareholders’ is attractive, but hard to put into practice, he notes. Perhaps the more important question is: do financial incentives produce any real change in executive behavior? Research suggests that most people are motivated by internal incentives. “External incentives such as remuneration will only help if they are applied to the right people and properly aligned with their external motivators,” Thomas warns. Regulations regarding executive pay, as proposed in Australia, are not the answer, he concludes.
