19 April, 2021

Executive pay best reformed with long-term equity

Long-term equity is best way to ensure interests of the environment and stakeholders, argues London Business School professor.

Alex Edmans. Photo: TEDx, Flickr

Executive pay should be reformed not by focusing on the sums paid, but on the structure of pay packages, according to a leading business academic. Professor Alex Edmans writes that chief executives are best incentivised with long-term equity. "Evidence in peer-reviewed journals shows the benefits of reforming pay structures. Granting CEOs long-term equity, for example, means not only higher future profitability, but also innovation and stewardship of the environment, as well as customers, society and, in particular, employees. "In contrast, short-term equity induces CEOs to cut investment to meet earnings targets," writes Professor E

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Alex Edmans, Executive pay, long-term equity, pay reform