The recent financial crisis, triggered primarily by bad bets in the financial sector, has brought the reality of corporate failure to the fore, adding momentum to the idea that executive compensation should be tied more closely to corporate debt rather than equity. For example, American International Group (AIG), after being bailed out by taxpayers, announced that it will link incentive pay to the value of the troubled insurer's bonds.
For decades, companies have tied executive compensation to equity, such as stocks and options, but the idea of adding debt-like instruments to the mix -- such as pensions or deferred compensation paid to executives from inside the firm (known as "inside" debt) -- is gaining new attention.
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