Chief executives with multi-million-dollar pay packets are not necessarily working in the best interests of shareholders, new research has found, and there may be a case to cap their pay.

A new paper called, When Less Is More: The Benefits of Limits on Executive Pay, asks whether limits on executive pay cheques harm or benefit shareholders.

University of Melbourne senior research fellow Dr Peter Cebon. Credit:Paul Jones

The paper by University of Melbourne senior research fellow Dr Peter Cebon and University of California, Berkeley, professor of finance Benjamin Hermalin, suggests that giving CEOs $10 million bonuses encourages them to make short-term decisions rather than work closely with the board and in the best interest of shareholders.

Dr Cebon said there's a case for limiting executive compensation.