Kathpathy Swami ts

Swaminathan Kalpathy Featured in Bloomberg Business

To say [CEO] performance-based pay is irretrievably bad “seems like a pretty blanket statement,” TCU Finance Professor Kalpathy says.

March 01,  2016

By Elaine Cole

A Harvard Business Review article on February 23 advised companies to stop paying executives based on performance. Written by London Business School professors Freek Vermeulen and Dan Cable, the article hit a nerve.

Bloomberg Business writer Peter Coy responded with an article February 26, “Heresy! Stop Paying CEOs Performance Bonuses, says Harvard Business Review,” where he talked with the HBR authors.

By rejecting the whole idea of performance-based pay, “some say that we’re throwing out the baby with the bathwater,” Vermeulen is quoted as saying

For a different perspective, Bloomberg turned to Swaminathan Kalpathy, assistant professor of finance at the TCU Neeley School of Business, who studies CEO pay.

Cable and Vermeulen are swimming against the tide, Kalpathy told Bloomberg.

Kalpathy pointed to current research he is working on, which shows that, in 1989, 21 percent of companies they studied gave performance-based awards to executives. That number shot up to 68 percent in 2012.

Kalpathy told Coy he agrees with several of Vermeulen’s and Cable’s points, but is nevertheless in the baby/bathwater camp: To say performance-based pay is irretrievably bad “seems like a pretty blanket statement.” The idea that executives respond to incentives, he said, “is kind of the cornerstone of agency theory.”

To read the full article in Bloomberg Business, click here: http://www.bloomberg.com/news/articles/2016-02-26/heresy-stop-paying-ceos-performance-bonuses-harvard-business-review-says.