Myths and Realities of Executive Pay

Myths and Realities of Executive Pay reviews the following myths surrounding executive pay and examines the evidence that refutes those myths.

Myth 1:	Executives are paid far more than they are worth in relation to the value they create for their companies.
Reality 1:	Executives generally receive only a small portion of the substantial value they help create for their companies and their shareholders.
Myth 2:	There is no pay for performance.
Reality 2:	High executive pay correlates with and contributes to high company performance.
Myth 3:	Executive pay only rises.
Reality 3:	Executive pay rises and falls in tandem with stock prices and the financial performance of the company.
Myth 4:	The labor market for top executives does not function properly because of managerial power and does not justify high levels of executive compensation.
Reality 4:	The labor market for top executive talent is highly competitive and compels companies to offer attractive pay packages to recruit the talent they need.
Myth 5:	High levels of executive compensation take money out of the pockets of shareholders and employees and act as a drag on the U.S. economy.
Reality 5:	High levels of executive compensation generated by effective performance pay practices contribute to successful companies that yield high returns for their shareholders, generate millions of jobs and drive U.S. economic growth.
Myth 6:	Out-of-control executive pay is one item in a long list of poor U.S. corporate governance practices.
Reality 6:	Many experts consider U.S. corporate governance to be among the best and most successful in the world. The model reflects the unique institutional factors in the United States, particularly highly dispersed shareholders.

These myths and realities can be reprinted in whole or in part if attributed to: Myths and Realities of Executive Pay, Ira T. Kay, Ph.D., and Steven Van Putten (Cambridge University Press, 2007).