The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performancepresents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders.

Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives.

This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performancepoints the way to restoring corporate integrity and improving corporate performance.

Pay Without Performanceis 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 Performanceis 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.

A profound and insightful analysis of the crisis in executive compensation.

Lucian Bebchuk and Jesse Fried have brought to light one of the most important issues facing our society today. I agree enthusiastically and almost completely with their analysis of the problem.

If one has time to read only a single book about corporate governance in US publicly traded companies, this is the book to read.

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.

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.

Pay Without Performanceis a significant book. It is a well-researched, careful study of a problem that has attracted considerable attention since the 1980s. The authors write welland manage at once to make the book readable and to satisfy the scholar's need to see evidence and documentationand#133; Pay Without Performanceis an important contribution to the continuingdiscussion about corporate governance. It will repay a careful reading, and it is likely to achieve the influence it deserves to have.

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.

[This book] does add to the discourse about executive compensation and corporate governance by offering an alternative view of the factors underlying executive compensation.

Like Thomas Paine's Common Sensein an earlier era, Pay Without Performanceis a terse manifesto for our age of manager's capitalism--a crystal clear and dispassionate, but ultimately devastating, analysis of how our deeply flawed system of corporate governance has led to grossly excessive executive compensation. This is a book that must be read, not only by any citizen who cares about sound corporate governance, but by any citizen who cares about our society--the best book that I've ever read on the subject.

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.

The most important change in corporate structure in the United States has been the shift of authority from stockholders and their directors to management. The dominance of management is fact, but the fiction of investor control persists. From management authority comes control of management compensation. That this should be generous, even lavish, and with no necessary relation to performance, is the reality of modern economic life. This literate and learned book is for all who wish to learn the facts and consequences.

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.

Lucian Bebchukis Professor of Law, Economics, and Finance and Director of Program on Corporate Governance at <>Harvard Law School.Jesse Friedis Professor of Law and Co-Director of the Berkeley Center for Law, Business, and the Economy at the <>University of California, Berkeley.

Preface

Introduction

PART I. THE OFFICIAL VIEW AND ITS SHORTCOMINGS

1. The Official Story

2. Have Boards Been Bargaining at Arm's Length?

3. Shareholders' Limited Power to Intervene

4. The Limits of Market Forces

PART II. POWER AND PAY

5. The Managerial Power Perspective

6. The Relationship between Power and Pay

7. Managerial Influence on the Way Out

8. Retirement Benefits

9. Executive Loans

PART III. DECOUPLING PAY FROM PERFORMANCE

10. Non-Equity-Based Compensation

11. Windfalls in Conventional Options

12. Excuses for Conventional Options

13. More on Windfalls in Equity-Based Compensation

14. Freedom to Unwind Equity Incentives

PART IV. GOING FORWARD

15. Improving Executive Compensation

16. Improving Corporate Governance

Notes

References

Index