The purpose of a good executive compensation package is to align executive interest with shareholder interest. However, once compensation passes a certain point this alignment is no longer effective. Indeed, it is counterproductive since it focuses executive energy on short-term goals (this year's mega-bonus) rather than long-term business success.
Aside from pure greed/ego, what real incentive does a CEO have to look out for the best interest of a company and its employees/shareholders if he knows that no matter what happens to the company this year's bonus gives him set-for-life financial independence?
Nobody should be surprised that these lotto-sized payoffs lead to reckless disregard for anything beyond the big payday.
“What incentive do CEO’s have it this year’s bonus gives him set-for-life financial independence.”
For that reason in addition to cutting top CEOs back to the 40 to 1 CEO pay/low level worker pay ratios that existed 35 years ago, they should also pay large bonuses over a period of years say 1/5th each year for 5 years. Also only allow them to cash in 1/5th of their stock options each year. At least then they would have a 5 year viewpoint rather than a 1 year viewpoint.