The Ombudsman: A Closer Look at the Efficiency of Top Executive Pay and Incentives

Jacquart and Armstrong [Jacquart P, Armstrong JS (2013) Are top executives paid enough? An evidence-based review. Interfaces 43(6):580-589] offer a series of provocative recommendations aimed at improving current executive compensation practices. I argue that when executive compensation contracts are designed to achieve multiple goals, an efficient contract may call for the executive to be paid rents, which could be mistaken for excess compensation. I also discuss how the popular notion that executive compensation contracts exhibit little, if any, pay for performance is largely inaccurate, because it focuses exclusively on annual pay rather than on the change in an executive's overall wealth. In particular, when changes in the value of executives' stock and option holdings are taken into account, executive compensation contracts tend to exhibit substantial pay for performance.