[simon_]

Analyses on this topic are always so bad. Some counterpoints:

(1) CEOs are intentionally aligned with shareholders, for good reason. Shareholders often make money due to luck, so eliminating luck from CEO compensation without breaking alignment is a very hard problem.

(2) Going in, a CEO (or a shareholder) needs to lock down a big future payday in the upside case, in order to compensate them for the risk of the downside case. Yes, the upside case usually involves some luck, but the "optionality" to get paid in a lucky outcome is a valuable part of the deal.

(3) CEOs are also paid to be trustworthy agents for shareholders/boards. Like... if I am a billionaire looking for you to oversee a big part of my capital, I may pay a lot just because I know you are a good/smart/reasonable person who will be autonomous but raise the right issues to me if needed, reliably. I might know all that just because we have been buddies for years, and even though there are lots of objectively more talented people out there who would do the job for less, paying you more would not be irrational for me.

[c3534l]

(1) The study specifically talks about the motivational effect of performance pay and finds that the component of luck means that performance pay must be more difficult to achieve in order to motivate the executive officers to align their interests with the company.

(2) You could reduce the financial risk of executive officers by paying them a fixed salary. In fact, different companies offer very different compensation plans. This was a review of those plans to see what did and did not work. Generous performance pay does not work.

(3) This is an issue of whether executive officers should be paid well in general, not the value of performance pay. And at any rate seems to be a justification for nepotism in an area of business that is already dysfunctionally nepotistic.