-beginning in the 1970″s, managers pay included increasing amounts of bonuses and profit-sharing based on firm value. -but Jensen and Murphy observed that these devices generated only a relatively weak relation between CEO pay and shareholder value (HBR 1990): “On average, corporate America pays its most important leaders like bureaucrats. Is it any wonder then that so many CEOs act like bureaucrats rather than the value-maximizing entrepreneurs companies need to enhance their standing in world markets?” How to increase “leverage” (b)?
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