Executive pay isn’t all that it’s cut out to be, if a recent joint study by PricewaterhouseCoopers and the London School of Economics is anything to go by.
Making executive pay work: The psychology of incentives, surveyed 1,106 executives across 43 countries. Ironically it found that highly complex compensation packages with deferred bonuses – beloved by the banking community – isn’t a chief employee motivator.
The report found that most executives prefer a simple pay package over an ambiguous one even if the latter had an equivalent or potentially higher value. Professionals also typically see deferred payments as being below their actual value.
Interestingly enough, money isn’t everything either. Respondents said they were willing to take a 28 per cent pay cut for their ideal job.
Could lowering pay work?
The study sums it up: “This research suggests that many aspects of long-term incentive plans mean they are designed to fail. Executives are risk averse, don’t like complexity and discount deferred pay. The pay systems we’ve adopted have many features executives dislike and don’t value – and we’ve had to pay executives more to compensate. If pay better reflected executive psychology, maybe it could be lower.”
Those employee sentiments are echoed in Singapore’s financial sector. Aamir Kiyani, division head, banking and finance, Monroe Consulting, says: “Executives and in particular, sales people, definitely prefer their pay structure to be in black and white so that there’s clarity – they know what they will get if they achieve certain things.
“Broadly speaking, we are seeing more professionals who are reluctant to work for some organisations because they are known to hold back commissions or defer a large percentage of bonuses. While some banks see this as a retention tool, it doesn’t work for all employees.”