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Rewards worth 20% less to executives for each year deferred

Joint research by Dr Sandy Pepper and PwC has found that pay is worth around 20% less to executives for each year it is deferred. At a time when regulators and shareholders are pushing for bonus deferral to curb excessive risk-taking, the research suggests that this strategy may not have the desired behavioural effect on executives and may in fact increase demand for higher overall compensation.

In addition, the research found that the comparative "fairness" of rewards to peers is fundamental to the motivation of executives.  Intrinsic motivation is also an important factor: many executives say that they would be prepared to take a substantial pay cut for their "dream" jobs, a measure of the cost of "crowding-out" intrinsic motivation.   The research concludes that reward schemes need to be better balanced, tailored to an executive's individual motivations and easily understood, in contrast with many of the complex senior executive reward arrangements currently in place.

Published: 03 March 2011