The Ombudsman: Do CEOs’ Aspirations for Wealth Harm Stockholders?

Increasingly, high-level executives are rewarded not for effective behaviors but for certain outcomes such as stock prices. The primary problem with this prevalent approach, which often gives large sums to CEOs, is that it strengthens any behavior that appear to lead to the outcomes, including fraudulent ones. In addition, board members often have similarly compensated positions in their own companies; therefore, top executives and board members are likely to support each other in pursuit of high pay. However, research has shown that when people aspire to and attain greater wealth, they tend to display poorer psychological well-being and decreased performance. Such compensation tends to undermine intrinsic motivation, which can result in negative consequences for companies and their stockholders.