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Pay without Performance

Pay without Performance

The Unfulfilled Promise of Executive Compensation

Lucian Bebchuk, Jesse Fried

ISBN 9780674022287

Publication date: 09/30/2006

The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders.

Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives.

This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.


  • Bebchuk and Fried present a powerful challenge to financial economists' view that compensation arrangements are designed by boards seeking to increase shareholder value. They offer a compelling account of how managers' influence has distorted executive pay. By showing how boards have failed to guard shareholder interests, Bebchuk and Fried raise fundamental questions concerning our corporate governance system and lay the ground for their proposed reforms. Their work will shape debates on executive compensation and corporate governance for years to come.

    —Joseph Stiglitz, Nobel Laureate in Economics, and author of The Roaring Nineties


  • Lucian Bebchuk is Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School.
  • Jesse Fried is Professor of Law and Co-Director of the Berkeley Center for Law, Business, and the Economy at the University of California, Berkeley.

Book Details

  • 304 pages
  • 0-3/4 x 6-1/8 x 9-1/4 inches
  • Harvard University Press