According to the Adapting to Change box, recent research on executive compensation has found that…

3. Why do corporate boards prefer performance-linked pay over fixed salaries?
Boards prefer pay linked to performance because it aligns executive actions with shareholder goals and motivates measurable improvement. Pay-for-performance can attract top talent and justify higher compensation when results follow. Boards must monitor metrics, set reasonable targets, and guard against short-term gaming to keep incentives productive and fair.