Executives prefer less risk-averse pay packages

Most executives would prefer less risk-averse pay packages, rather than deferred bonuses and complex incentive schemes, according to a report by PriceWaterhouseCoopers (PWC) and the London School of Economics (LSE).

The Psychology of incentives report, which surveyed 1,100 executives, found that most respondents would prefer a smaller but more certain reward to a complex remuneration plan that might be difficult to predict.

The research also found:

51% of respondents favoured a cash plan based on profit targets that they understand over a more ambiguous share plan based on their share price relative to other companies.
For the majority of respondents, getting paid more than their peers (51%) was more important than getting paid more in absolute terms (27%).

Tom Gosling, head of PWC’s reward practice, said: “We’re paying managers as though they are risk-seeking entrepreneurs.

“Our research showed that corporate executives are generally risk averse, and don’t value long-term incentive plans and deferred bonuses.

“We need to simplify pay significantly. We’ve tried to put too much of the package into complex incentives that executives don’t value, and this is leading to volatility of pay-outs and unintended consequences.

“If we had simpler, less volatile pay plans then most executives would be happy to be paid less.”