Faculty News | PBS | 02
Should Pay-for-Performance Compensation be Replaced?
Re: Mihir Desai
Mihir Desai, the Mizuho Financial Group Professor of Finance at Harvard Business School, has written recently decrying the practice of tying executive compensation to a company's stock price. He equates P4P to "outsourcing" the appraisal of management to compensation committees—a practice that encourages managers to act for near-term success of the business. This pleases investors who have a short-term interest, at the expense of the long-term performance of the company.