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Pay without Performance: The Unfulfilled Promise of Executive Compensation Hardcover – November 22, 2004

ISBN-13: 978-0674016651 ISBN-10: 0674016653

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Product Details

  • Hardcover: 304 pages
  • Publisher: Harvard University Press (November 22, 2004)
  • Language: English
  • ISBN-10: 0674016653
  • ISBN-13: 978-0674016651
  • Product Dimensions: 9.2 x 6.3 x 1.1 inches
  • Shipping Weight: 1.2 pounds
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (11 customer reviews)
  • Amazon Best Sellers Rank: #1,052,361 in Books (See Top 100 in Books)

Editorial Reviews


Ever wonder if corporate executives are paid too much? Look at it this way: from 1993 to 2002, the aggregate compensation of the top five executives in all public companies amounted to an astonishing $250 billion, equivalent to 7.5% of all corporate earnings. Defenders of the status quo say that such bloated pay provides managers particularly CEOs with incentives crucial to high performance. Those defenders have not yet read Lucian Bebchuk and Jesse Fried's Pay Without Performance. The authors marshal a formidable arsenal of facts to pick apart the incentives argument, exposing myriad ways in which CEOs have decoupled pay from performance and hidden that fact from investors with the aid of supine corporate directors. The lucidly argued treatise frames the issue not in ethical terms but as a problem of efficiency. As for solutions, Bebchuk and Fried maintain that board directors should be not only more independent of the executives they supervise but also much more dependent on stockholders. If shareholders had the power to alter the composition of the corporate board, the authors argue, directors would be more likely to keep investors' interests top of mind when setting CEO salaries and perks. (Unmesh Kher Time Magazine 2004-11-28)

In times both bullish and bearish, there is periodic outrage over huge compensation packages for executives at publicly traded companies. The recent wave of corporate scandals only inflamed concerns that companies' boards of directors, too cozy with CEO's, were betraying their duty to shareholders. Reacting, defenders of corporate America have often offered 'rotten apple' theories and other explanations that deny any systemic problem. Inadequate, say Lucian Bebchuk, a professor of law, economics, and finance at Harvard University, and Jesse Fried, a professor of law at the University of California at Berkeley. In Pay Without Performance, the scholars uncover what they say are widespread, persistent, and indeed systemic flaws in compensation arrangements. (Nina C. Ayoub Chronicle of Higher Education 2004-12-03)

Lucian Bebchuk and Jesse Fried offer a devastating critique of the way public companies pay their top executives. Relying on data rather than rhetoric, Fried and Bebchuk describe a diseased system in which executives wield enormous influence over their pay, board members have little incentive to slow the gravy train, and everyone involved goes to great lengths to hide the numbers from shareholders...Those looking for a substantive deconstruction of the system--and a few ideas to fix it--could hardly do better. (Ben White Washington Post 2004-12-05)

In Pay Without Performance, Lucian Bebchuk of Harvard and Jesse Fried of Berkeley set out to identify the failure of corporate governance that allows chief executives' compensation to carry on rising with little relation to performance. They point the finger firmly at board directors. (The Economist 2004-12-18)

For anyone looking for a guide to the debate over American top pay, this book will be indispensable. It is clear, well-argued, fully researched and deeply felt. (Michael Skapinker Financial Times 2005-02-07)

Pay Without Performance is a significant book. It is a well-researched, careful study of a problem that has attracted considerable attention since the 1980s. The authors write well and manage at once to make the book readable and to satisfy the scholar's need to see evidence and documentation… Pay Without Performance is an important contribution to the continuing discussion about corporate governance. It will repay a careful reading, and it is likely to achieve the influence it deserves to have. (Robert G. Kennedy Ethics and Economics)

This book has important messages about where [the balance between managers, directors, and shareholders] should lie, not just with regard to executive compensation but to governance in general. (Peter Montagnon Management Today 2005-02-01)

If one has time to read only a single book about corporate governance in US publicly traded companies, this is the book to read. (James A. Fanto International Company and Commercial Law Review)

[This book] does add to the discourse about executive compensation and corporate governance by offering an alternative view of the factors underlying executive compensation. (Joseph Gerakos Journal of Pension Economics and Finance)

I rate this as an important book that should help to get the academic profession thinking in a new direction. The supporters of the conventional model of compensation clearly have a case to answer, and this book makes it plain what the challenges to developing a better understanding of executive compensation are. Thus, it will surely generate a productive debate...The book should also be seen as a welcome contribution to the corporate-governance debate in Europe, as it provides a sobering perspective on what many regard as a role model. Everybody who wants to participate in the debate on executive compensation should read this book. (Ernst Maug Journal of Institutional and Theoretical Economics 2006-01-01)


Bebchuk and Fried present a powerful challenge to financial economists' view that compensation arrangements are designed by boards seeking to increase shareholder value. They offer a compelling account of how managers' influence has distorted executive pay. By showing how boards have failed to guard shareholder interests, Bebchuk and Fried raise fundamental questions concerning our corporate governance system and lay the ground for their proposed reforms. Their work will shape debates on executive compensation and corporate governance for years to come. (Joseph Stiglitz, Nobel Laureate in Economics, and author of The Roaring Nineties)

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Customer Reviews

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As a result, the book remains useful to the specialist as well.
Stephen M. Bainbridge
CEOs retain influence over director compensation and rewards, as well as social and psychological rewards.
James Mcritchie
Thus, I really think you will enjoy and learn a lot from this book.
Gaetan Lion

Most Helpful Customer Reviews

14 of 17 people found the following review helpful By Laurence J. Stybel on November 21, 2004
Format: Hardcover
In his letter to Berkshire Hathaway investors in 2004, Warren Buffett wrote:

"In judging whether Corporate America is serious about reforming itself, CEO pay remains the acid test. To date, the results aren't encouraging."

PAY WITHOUT PERFORMANCE expands on Buffett's comments and provides a research base to support it. The authors also suggests what needs to be done to effectively deal with this "acid test" of corporate reform.

Lucian Bebchuck is the William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance at the Harvard University School of Law. He is also a Research Associate of the National Bureau of Economic Research. Bebchuck has a doctorate in economics from Harvard and a law degree from Harvard. Jesse Fried is Professor of Law at the Boalt School of Law at the University of California at Berkeley. Prior to his academic career, he practiced tax law in Boston. Fried holds degrees in economics and law from Harvard University.

The authors argue that Sarbanes Oxley reforms may have marginally improved the independence of Boards from CEOs. But Board members are still not dependent enough upon the shareholders they are supposed to represent. This dysfunctionality in the system makes it impossible for Compensation Committees to conduct true "arms length" compensation discussions with CEOs.

The result is a CEO compensation system that tends to verbalize pay for performance without actually achieving it for CEOs.

When CEO pay is uncoupled from performance, Board members seek to avoid having to pay "outrage costs" from the shareholders.
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14 of 18 people found the following review helpful By Stephen M. Bainbridge on December 24, 2004
Format: Hardcover
I have been reading Pay Without Performance: The Unfulfilled Promise of Executive Compensation by (Harvard law professor) Lucian Bebchuk and (Boalt law prof) Jesse Fried. Bebchuk and Fried take issue with the standard academic account of executive compensation, which goes something like this: Executive compensation is a classic agency cost problem. Although CEOs and other executives are agents of the corporation and its shareholders, they have incentives to shirk. Indeed, they have incentives to behave opportunistically - i.e., to maximize their own wealth and perks at the expense of their shareholder principals. Accordingly, executive compensation schemes must be designed in ways that constrain shirking and opportunism; in other words, executive compensation schemes should strive to align executives' interests with those of the shareholders. In the literature, this usually leads to a recommendation of some sort of performance-based pay scheme, typically entailing the use of stock options.

Bebchuk and Fried do a good job of explaining why executive compensation schemes fail adequately to align managerial and shareholder interests. In brief, they make the very sensible point that managerial influence over the board of directors taints the process by which executive compensation is set. In other words, the system by which agency costs are to be checked is itself tainted by an agency cost problem.

I get off the boat, however, when it comes to the solution. Bebchuk and Fried want to displace the time-tested corporate governance system of director primacy with an untested new system based on shareholder primacy. As regular readers of my academic work know, this is anathema in my book.
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4 of 4 people found the following review helpful By Ramulin on August 7, 2006
Format: Hardcover
Other reviewers have made many excellent points. I'll try to avoid duplicating their comments here...

- This book is written by two law school professors. They carefully and precisely make their case. Even as they make their points, they consider possible counter-arguments, and then cite further evidence to answer these objections. They clearly and methodically make their case.

- They start from a somewhat unique set of premises.

--> Whereas many critiques of executive compensation approach the large amounts as an egregious breach of egalitarian values, the authors are indifferent about the size of exec compensation.

--> On the flip side, while many would excuse large compensation packages as necessary to obtain top talent in a tight market, the authors come from a perspective of "if shareholders, as the *owners* of the company, can pay a lot for exec talent, but not get good returns, what's wrong with the market for executive talent?" This book challenges long held assumptions price always equals quality when shopping for top management talent.

- For a book that cites hard economic facts as often as they do, it also does a great job of analyzing the human element of this market to provide insights that seem missing in public debate about executive pay.

- Even as someone who is an outsider both to corporate governance and executive compenation, I found this book accessible and an enjoyable read. As a shareholder of a number of companies, I intend to take opportunities to reform this clearly corrupt system.

Highly recommend this book for everyone who owns shares in a publicly traded company, or works for one.
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