"Perverse" traditions for setting U.S. executive pay have created compensation inflation, says columnist Neil Weinberg. "The main reason pay has spun out of control is that the ruling cabal of senior executives, directors and compensation consultants have a collective interest in seeing that it does," he says. He has great hope for RiskMetrics, a financial risk-management firm that is developing a quantitative model that aligns pay with the interests of shareholders and examines whether the components reward good behavior or encourage rash gambles.

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