If You're So Ethical Why Are You So Highly Paid? Market Failure in Executive Pay

Contributor(s): Dr Eva Micheler, Professor Sandy Pepper, Professor Alex Voorhoeve, Katherine Griffiths | Over the last 30 years senior executive pay in the USA, UK and many other developed countries has increased dramatically, generating enormous debate and, at times, public and political outrage. Sandy Pepper’s book argues that this ‘soaraway’ inflation in executive pay is the result of a market failure that has lead remuneration committees to become trapped in a prisoner’s dilemma – where they feel they must recommend over-the-odds payments in the vain hope of obtaining or retaining superior talent. For institutional investors too, these developments have created a collective action problem, with many historically unwilling or unable to intervene to curtail excessive corporate executive pay. Combatting this ‘market failure’ approach to executive pay ultimately requires a stronger, reformed ethical response from investors, companies, and executives – but what solutions are feasible?