Agency theory is the dominant economic model in executive pay research, assuming profit-making organisations and rent-seeking agents, whilst dismissing non-pecuniary motivations, behaviour and agent preference entirely. The assumption of rationality continues to underpin the design of executive compensation, despite ongoing criticism that the validity of agency theory is not represented in the empirical research. This literature review considers both economic and behavioural research in the context of executive pay. Furthermore, it argues in favour of challenging the status quo in a manner which is both different and complementary to the current rational choice models, and which recognises certain pay-related judgements are psychological in nature where individuals are constantly driven to evaluate their own options and abilities
