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Are long-term incentive plans an effective and efficient way of motivating senior executives?

Pepper, Alexander, Gore, Julie and Crossman, Alf (2013) Are long-term incentive plans an effective and efficient way of motivating senior executives? Human Resource Management Journal, 23 (1). pp. 36-51. ISSN 0954-5395

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Abstract

Research on senior executive reward has typically explored the connection between pay, performance and the alignment of interests of executives and shareholders. This article examines the relationship between reward and motivation, drawing on the psychological, behavioural economics and decision-making literatures. Based on an empirical study of FTSE 350 senior executives, the research examines whether long-term incentive plans are an effective and efficient way of motivating executives, taking into account risk, time discounting, uncertainty and fairness. The article concludes that the way executives frame choices, perceive value, assess probability, evaluate temporal effects and respond to uncertainty means that long-term incentive plans (LTIPs) are generally not efficient and are often not effective in meeting their objectives. It proposes that, in its current form, agency theory does not provide a sound basis for modelling senior executive reward, and suggests five areas for development.

Item Type: Article
Official URL: http://www.wiley.com/bw/journal.asp?ref=0954-5395
Additional Information: © 2013 John Wiley & Sons Inc.
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Sets: Research centres and groups > Employment Relations and Organisational Behaviour Group
Departments > Management
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 08 Feb 2012 18:08
URL: http://eprints.lse.ac.uk/41818/

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