The Future of Boards

Four

The Pay Problem*

Time for a New Paradigm for Executive Compensation

JAY W. LORSCH AND RAKESH KHURANA

*Previously published in Harvard Magazine, May–June 2010, 30–35.

Concerns about the compensation of chief executive officers and other top executives of American public companies have reached fever pitch since the financial crisis and the economic meltdown of 2009. Some observers blame the recent recession in part on the flawed compensation arrangements for the top management of major financial institutions. Such concerns are not new. For almost twenty years, a growing chorus of voices—including some shareholders, the business media, policy makers, and academics—have been criticizing the way top managers are paid. The criticisms focus particularly ...