US CEO pay explosion 'due to flawed incentive system'

Skyrocketing levels of executive pay in the US can be attributed in large part to the flawed incentive structure that companies operate by, according to finance experts.

Roger Martin and Jennifer Riel of the Rotman School of Management at the University of Toronto told CNN Money that it is potentially unhelpful to blame individual chief executive officers (CEOs) for excessive pay rates.

According to the authors and commentators, the current financial system has created an "unwinnable game" for business leaders, whereby rewards are weighted too heavily on creating shareholder value, a metric that is often removed from business fundamentals.

It was noted that directors and shareholders themselves are just as complicit in driving this system as CEOs themselves, suggesting the need to create an entirely new system of business incentives.

"Would we not be better off to design a system in which the explicit incentives encourage long-term thinking, value creation and contribution to society?" the authors said.

This comes after a report from Johnson Associates earlier this month suggested that bonus payments among finance companies in the US fell in the third quarter of 2011, due in part to increased scrutiny on pay policies.