CEO remuneration structures are a distinct issue of interest to shareholders, with likely implications for the well-functioning of financial markets. This note views remuneration as an expression of corporate governance and discusses commonly used incentive plans and alternative remuneration schemes.
Agency theory remains relevant to executive remuneration in listed companies because CEO incentives do not match those of shareholders. It is therefore in the interest of shareholders to better align the actions of the CEO with their interests.
Requiring the CEO to be a long-term shareholder seems to be an underutilised strategy for aligning the interests of the CEO with those of shareholders. This should supplement the promotion of a board of directors that effectively monitors management and is accountable to shareholders.