PwC challenges performance-related pay

Last year PwC put out a report raising some questions about the motivational aspects of executive pay. Today they have published a bigger, global survey of executive views, preview commentary here. Although it doesn't delve into motivational theory, it clearly continues an apparent turn away from reliance on performance-related pay.

Get a load of this:

Reward design tends to assume that people make rational decisions, but is that really the case? The issue of performance pay has polarised academics for some time, but questions are increasingly being asked about its effectiveness. In those markets that have used them longest it’s also becoming increasingly clear that there is something seriously wrong with LTIs. Companies invest an enormous amount into these plans, but the response from executives can rarely be said to justify the cost.

The recent financial crisis and the perception that bonuses played a role in causing it has led to a renewed focus on performance pay. But even now, the ‘solutions’ put forward are still based on the assumption that performance-related pay works, and that the answer is to structure it differently, to have more sophisticated payout formulae and to defer pay over longer periods.

And this:

[P]aying in incentives rather than salary is an investment. And like any investment companies need to be clear about the payback. Is the payback better performance? If so, what’s the evidence you’re getting it? Is it about cost flexibility? If so, how much do you need? Is it just that you’ve got to offer it because everyone else does? If so, have you tested that assumption?

In too many cases performance pay is deployed with blind faith rather than cold analysis. 

And this:

We need to consign to the scrap heap the agency model approach to executive pay, based on ‘rational economic man’, which has been so unhelpfully influential in current Western pay systems.

I could have written some of this myself!