Pay without Performance: The Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried is a critical examination of the flaws in executive compensation practices. The book argues that the prevailing view that corporate boards negotiate executive pay at arm's length is flawed. Instead, it highlights how managerial power has significantly influenced pay arrangements, leading to compensation that is not aligned with shareholder interests. The authors analyze how corporate governance structures have enabled executives to exert considerable influence over their boards, resulting in compensation practices that are often disconnected from performance. They argue that the current system of corporate governance, which insulates boards from shareholder intervention, has contributed to problematic compensation arrangements. The book also discusses the role of market forces in shaping executive pay, noting that while they do impose some constraints, they are not sufficient to ensure that pay is performance-based. The authors propose reforms that would make directors more accountable to shareholders, thereby reducing the forces that have distorted compensation arrangements. They emphasize the importance of understanding the root causes of existing problems in order to develop effective solutions. The book also addresses the issue of equity-based compensation, arguing that while it can provide desirable incentives, it has been misused to the detriment of shareholders. The authors critique various perspectives on executive compensation, including those that argue that high executive pay is fair or that financial incentives are not the primary motivators for top executives. They contend that while financial incentives can be effective, the current system has allowed executives to take over the compensation process, leading to arrangements that fail to provide managers with the desired incentives. The book concludes that the subject of executive pay is of significant economic importance, with substantial costs imposed on shareholders due to flawed compensation arrangements. The authors argue that the current system needs to be reformed to ensure that executive pay is more closely aligned with performance and that directors are more accountable to shareholders.Pay without Performance: The Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried is a critical examination of the flaws in executive compensation practices. The book argues that the prevailing view that corporate boards negotiate executive pay at arm's length is flawed. Instead, it highlights how managerial power has significantly influenced pay arrangements, leading to compensation that is not aligned with shareholder interests. The authors analyze how corporate governance structures have enabled executives to exert considerable influence over their boards, resulting in compensation practices that are often disconnected from performance. They argue that the current system of corporate governance, which insulates boards from shareholder intervention, has contributed to problematic compensation arrangements. The book also discusses the role of market forces in shaping executive pay, noting that while they do impose some constraints, they are not sufficient to ensure that pay is performance-based. The authors propose reforms that would make directors more accountable to shareholders, thereby reducing the forces that have distorted compensation arrangements. They emphasize the importance of understanding the root causes of existing problems in order to develop effective solutions. The book also addresses the issue of equity-based compensation, arguing that while it can provide desirable incentives, it has been misused to the detriment of shareholders. The authors critique various perspectives on executive compensation, including those that argue that high executive pay is fair or that financial incentives are not the primary motivators for top executives. They contend that while financial incentives can be effective, the current system has allowed executives to take over the compensation process, leading to arrangements that fail to provide managers with the desired incentives. The book concludes that the subject of executive pay is of significant economic importance, with substantial costs imposed on shareholders due to flawed compensation arrangements. The authors argue that the current system needs to be reformed to ensure that executive pay is more closely aligned with performance and that directors are more accountable to shareholders.