Economist slams CEO pay
BENGT Holmstrom, the Finnish economist whose contract theory earned him the Nobel economics prize, said executive compensation has gotten out of hand and contributed to the collapse of Enron Corp.
Mr Holmstrom, who shared the 2016 Nobel with fellow economist Oliver Hart, explored the way employment contracts can shape behaviour and reach mutually beneficial outcomes for the hirer and hiree.
But he told an audience at the Massachusetts Institute of Technology, where he now works, that their research hasn’t always gotten through to those who design pay packages.
He said the collapse of Enron, the high-flying energy company that failed in 2001, related to executives’ pay deals, with generous stock options, that did not align their interests with the company’s.
He told journalists that executive pay had gotten too complicated.
“There’s so many pieces of it and it’s just a mess ... I wish they would listen a little bit more about what we know or understand about executive compensation.” –