9 Consequences for short-term variable pay

This new approach towards executive compensation would result in remuneration no longer being linked to short-term financial and non-financial performance measures. The two reasons behind the introduction of this type of remuneration have lost their value in the light of the findings of this research. The incentives that are the result of remuneration based on such performance measures turn out to be particularly uncontrollable and lead to damaging myopic behaviour. In addition, the argument that remuneration must be given for these derived performance measures because they provide information about how executives are functioning is no longer valid. The research has revealed that the informational value of a certain indicator is negated as soon as that indicator is transformed into a performance measure and part or all of the executive compensation is dependent on it being achieved. If these financial and non-financial indicators need to retain their informational value regarding the functioning of an executive, the link to remuneration must be broken.