There is a debate about the tremendous rise in top executive pay. For some people it is only injustice, for others it is also a reason for corporate scandals and financial crisis.
It is not only that pay is often for non-performance. Executive pay for performance is regarded as a governance tool similar to, say, supervisory boards; but it has become highly questioned. The idea is based on the carrot and stick principle, but it represents an enormous incentive to manage earnings, short term orientation and ignoring risks. Executive pay systems poisoned rather than to have cured corporate governance.
Complex and dynamic business environments make it difficult both to measure corporate performance and to describe its drivers. Thus, the question arises whether, for instance, non-financial and ethical values are as relevant to corporate success as financial value enhancement. But a lack of transparency may open up such systems to manipulation.
Title photo cited from: Claudia Deutsch, A Brighter Spotligth, Yet the Pay Rises, The New York Times, April 6, 2008
Last week, the Obama administration’s “pay czar,” Kenneth Feinberg, announced that the government will impose caps on compensation for the 25 highest-paid executives at seven companies that received “exceptional assistance” through the Troubled Asset Relief Program — including American International Group (AIG), Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors and GMAC. Under the new regulations, salaries will be reduced by an average of 90%, and total compensation (including bonuses and stock options) will be lowered by 50%. Knowledge@Wharton spoke with Wharton accounting professor 
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