What you've just described is a stock option. This is an extremely common form of executive compensation. The problem is that it incentivizes greater (and potentially dangerous) risk taking. Greater risks increase the probability of large payouts and losses. But if there's a great loss, the CEO still makes the base salary -- he can't be held financially responsible for all the company's losses. So to the executive it doesn't really matter whether the company loses small or loses big. But there's a big difference between winning small and winning big.