In this article by the Dean of Rotman School of Business (the business school is based upon integrated/design thinking), Roger Martin argues that CEO pay should not be tied to equity as it is both an inaccurate long term measure and, given the short term personal gains to the executive, can lead to bad decisions.
Monday, September 28, 2009
CEO Compensation
As we have discussed, in the creation of a business model as well as financial models and business plans, the creation of value has multiple measures. Historically, large public companies compensation their executives based upon stock performance. Stock performance is, largely, speculative based upon historic performance, competition, and anticipated trends. In 2001 (dot bomb) and most recently during the housing bubble burst and related credit crisis, equity values of many of the bank and mortgage companies were illusions when compared to long term value.
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