EXECUTIVE PAY INSUFFICIENTLY ALIGNED WITH LONG-TERM VALUE CREATION

Over the past decades, executive pay has seen tremendous growth, resulting in more and more public outcry as well as frequent discontent among the company’s stakeholders (including shareholders). Not only is the level of pay leading to criticism, but the structure of pay, which impacts behavior, is also meeting considerable and growing resistance. Remuneration structures are often designed to stimulate short-term profit maximization instead of creating long-term sustainable value, disregarding environmental, social, and governance (ESG) considerations.

Executive remuneration is traditionally focused on an alignment with the interest of shareholders (principal-agency theory) but the mismatch in access to information, combined with a difference in time horizon between shareholders and management, makes it possible for managers to influence their pay beyond the contractual intent.

Corporate executives more and more are considered to have a role as stewards working toward long-term value creation for all stakeholders, integrating all assets (financial, social, and environmental) to generate sustainable contributions to its shareholders, employees, its customers, and society at large.

 

What is needed is a thorough review of executive remuneration practice. Reward Value intends to contribute to the development of the required changes, and acts from an analytical, factual, and independent base. Reward Value is a not-for-profit organization and involves all relevant stakeholders in the development of its recommendations. Furthermore, Reward Value not only develops research, but it also can support the effective implementation of the required change.

 

Changing entrenched ideas on remuneration policy will require broad support from all stakeholders and a strong factual foundation. Reward Value has commissioned SEO Amsterdam Economics to support the initiative with extensive analytical research. Reward Value will continue to develop close cooperative working relationships with institutional investors, business schools, and the business community as partners in the development of recommendations for better performance-based pay reflecting long-term value creation and corporate contribution to society and nature.

- Reward Value's Mission - 



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