Abstract
This thesis examines the relationship between reward and motivation in the case of senior executives. Specifically, it examines whether long-term incentive plans are an effective and efficient way of motivating senior executives. More generally, it examines behavioural aspects of senior executive reward systems, including the role of intrinsic motivation, goal-setting and how the motivation of executives is influenced by social comparisons. Previous research on senior executive reward has commonly explored the relationship between pay, performance and the alignment of interests of senior executives and shareholders, often carried out from a theoretical microeconomic perspective and typically based on principal-agent theory. The current research is more eclectic, drawing upon concepts and methods from behavioural economics, cognitive psychology and selectively from the literature on decision-making. It is based on two empirical studies of FTSE 350 senior executives. The first is a qualitative study (referred to as "Study 1"), involving 15 in-depth semi-structured interviews. The second is a quantitative study (referred to as "Study 2"), comprising a survey with 75 participants. The thesis concludes that the way senior executives frame choices, perceive value, assess probability, evaluate temporal effects, and possibly (although this is less certain based on the evidence) respond to uncertainty, means that LTIPs are generally not efficient and are often not effective in the sense that they do not meet the objective of motivating senior executives. It also concludes that, in its current form, principal-agent theory does not provide a sound basis for modelling senior executive reward and suggests various modifications. Recommendations for practice include redesigning LTIPs to reduce their complexity, eliminating relative performance conditions, supporting LTIP programmes with better employee communications and reducing the proportion of total reward packages comprised by LTIPs. From a public policy perspective, it is argued that economic and social objectives are more likely to be met by encouraging simpler, more efficient and more effective long-term incentive programmes as part of (potentially less generous) but better designed remuneration strategies.