Related Experiment Video
Updated: Aug 9, 2026

11:51
Combining Behavioral Endocrinology and Experimental Economics: Testosterone and Social Decision Making
Published on: March 2, 2011
CEO incentives-its not how much you pay, but how
Harvard Business Review
|April 9, 1990
Summary
CEO compensation is not at record highs, contrary to popular belief. Executive pay has stagnated over decades, with minimal correlation to corporate performance, necessitating reforms in compensation practices.
Area of Science:
- Business and Economics
- Corporate Governance
Background:
- Public debate on executive compensation often focuses on pay levels.
- Prevailing wisdom suggests CEOs receive record salaries and bonuses.
Purpose of the Study:
- To analyze executive compensation trends over five decades.
- To investigate the relationship between CEO pay and corporate performance.
- To evaluate the effectiveness of current compensation structures.
Main Methods:
- In-depth statistical analysis of compensation data.
- Inclusion of data from thousands of CEOs across five decades.
- Examination of CEO stock ownership and its historical changes.
Main Results:
- CEO cash compensation has increased but is only now matching levels from 50 years ago.
- Annual executive compensation changes show little correlation with corporate performance.
- CEO stock ownership, a key performance link, has significantly decreased since the 1930s.
Conclusions:
- Current executive compensation practices are not aligned with performance.
- Reforms are urgently needed to link compensation to outstanding performance and penalize poor performance.
- Effective compensation policies are crucial for organizational success and attracting top executive talent.
Related Concept Videos
Persuasion Strategies
Researchers have tested many persuasion strategies, including the foot-in-the door and the door-in-the-face techniques, in a variety of contexts. Ultimately, the principles are effective in selling products and changing people’s attitude, ideas, and behaviors (Cialdini & Goldstein, 2004).
Social Loafing
Another way in which a group presence can affect performance is social loafing—the exertion of less effort by a person working together with a group. Social loafing occurs when our individual performance cannot be evaluated separately from the group. Thus, group performance declines on easy tasks (Karau & Williams, 1993). Essentially individual group members loaf and let other group members pick up the slack. Because each individual’s efforts cannot be evaluated, individuals become less...
Compensation Mechanisms
The human body employs intricate mechanisms to counteract changes in blood pH, preventing conditions like acidosis (pH < 7.35) and alkalosis (pH > 7.45). These compensatory responses aim to restore normal arterial blood pH by engaging respiratory or renal systems, depending on the source of the imbalance.
Respiratory Compensation
This mechanism addresses metabolic-induced pH imbalances by adjusting breathing rates. Respiratory compensation begins within minutes of detecting a pH...
Respiratory Compensation
This mechanism addresses metabolic-induced pH imbalances by adjusting breathing rates. Respiratory compensation begins within minutes of detecting a pH...
Incentive Theory: Pull Theory of Motivation
Incentive theory, or the "pull theory" of motivation, suggests that external rewards primarily drive behavior. Individuals are motivated to engage in activities when they anticipate a desirable outcome. This is why people often work hard for promotions or study intensively to achieve high grades. These incentives can be tangible, physical rewards such as money or promotions, or intangible, non-physical rewards like praise and social recognition.
The theory differentiates between intrinsic and...
The theory differentiates between intrinsic and...
Motivational Bias
Cognitive bias results from limitations in thinking and information processing, leading to systematic errors in judgment. Conversely, motivational bias stems from personal desires or emotions, causing distortions in perception to align with self-interest. Motivational bias influences how individuals perceive and attribute causes to events, often shaped by personal needs, goals, and self-esteem preservation. This bias can distort judgment, leading to inaccurate assessments of success, failure,...
Equity Theory
Equity theory explains how our sense of fairness influences the dynamics of close relationships. Rooted in social psychology, the theory posits that individuals evaluate fairness by comparing the ratio of their contributions to the rewards they receive. Relationship satisfaction is highest when these ratios are perceived as balanced between partners, promoting mutual reciprocity and a sense of justice.Equity vs. Equality in RelationshipsEquity is distinct from equality. Fairness does not...

