Wharton: Tying Exec Comp to Shareholder Value Lead to Meltdown

Last Updated Sep 24, 2008 7:47 PM EDT

wall_street_crash_1929.JPGIn a blistering new opinion on the Wall Street meltdown, the Wharton School's Knowledge@Wharton takes on the popular and long-held corporate shibboleth that tying shareholder interests to individual executive incentives is always good for a company, its partners and its customers. In fact, says the article, it's at "the root of the leadership debacle that has rocked the financial services sector."

"We ought to start thinking about whether this idea is really working," says Wharton prof, Peter Cappelli, in Eyes on the Wrong Prize: Leadership Lapses That Fueled Wall Street's Fall. "It seems to work for the people in charge, but is it really working for the company? It's certainly not working in the broader society. The shareholders and the executives who have shares in the company are in trouble, but this is spilling over into the economy in a way that I haven't seen before."

What do you think? What should exec comp be tied to if not shareholder value?