Why excessive executive pay is a mistake

I recommend reading the whole article.

By Margaret Heffernan March 25, 2014

When David Winters, a longtime money manager, read the Coca-Cola Company's annual report recently, the amount of stock put aside to reward the company's managers stopped him in his tracks. Over the next four years, some $13 billion of stock was set aside for company executives. This would have meant that fully 14.2 percent of company stock was being used to motivate a management team already well paid. According to the New York Times, Winters argued that "it is unfathomable that they would require such astronomical sums of money to provide motivation."

It isn't just unfathomable. It's wrong. Why?

First of all, money isn't a great motivator. While it may offer temporary delight, its value soon wears off. We all accommodate to what we get, so its value as a long-term incentive is slight.

Moreover, money inhibits our sense of social connectedness.

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Moreover, geographically the money also separates me from everyone else.

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The old argument -- that you have to pay to secure real talent -- is exactly wrong. If you have to pay to get or keep your talent, you end up with the wrong person. Consider instead the view of Charles Munger of Berkshire Hathaway: "People should take way less than they're worth when they're favored by life," he says, further arguing that when you have risen high enough, you have a "moral duty to be underpaid -- not to get all you can, but to actually be underpaid."

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