A Critical analysis of the role agency theory plays in executive remuneration

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution

Abstract

In view of recent scandals concerning executive remuneration and the current Australian government inquiry into its structure and regulation, this paper examines the foundation that agency theory provides for executive pay. The paper argues that agency theory assumptions concerning executive motivation and behaviour provide a flawed basis for the design of executive compensation. After examining evidence concerning the incentive effects of performance pay, and why incentive schemes may have adverse implications for firm performance, the paper considers the value of an alternative model, stewardship theory, for discussions about executive pay structures. The paper concludes that, given the limitations of agency theory as a conceptual basis for executive pay systems, a fundamental rethinking is required as to how executives are paid, and how corporate law regulates this aspect of governance.
Original languageEnglish
Title of host publicationWork in progress
Subtitle of host publicationcrises, choices and continuity : proceedings of the 24th AIRAANZ conference
EditorsAlison Barnes, Nikola Balnave, George Lafferty
Place of PublicationSydney
PublisherUniversity of Western Sydney
Pages1-11
Number of pages11
ISBN (Print)9780980608526
Publication statusPublished - 2010
Externally publishedYes
EventAssociation of Industrial Relations Academics of Australia and New Zealand Conference (24th : 2010) - Sydney
Duration: 3 Feb 20105 Feb 2010

Conference

ConferenceAssociation of Industrial Relations Academics of Australia and New Zealand Conference (24th : 2010)
CitySydney
Period3/02/105/02/10

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