How much sunlight does it take to disinfect a boardroom? A short history of executive compensation regulation in America

Ian Dew-Becker*

*Corresponding author for this work

Research output: Contribution to journalArticle

17 Scopus citations

Abstract

This article reviews the history of executive compensation regulation in America and surveys the literature on the effects of these policies. CEOs are almost exclusively in the top 1% of the pay distribution, and regulation of their pay is seen as a well-targeted way of reducing income inequality. Mandatory disclosure of executive compensation has increased nearly uniformly since 1933. A number of other regulations, including special taxes on CEO pay and rules regarding votes on some pay packages have also been introduced, particularly in the last 20 years. However, there is little solid evidence that any of these policies have had any substantial impact on pay. I also review limited evidence from overseas on 'Say on Pay', recently proposed in the US, which would allow nonbinding shareholder votes on CEO compensation. The experiences of other countries have been positive, with tighter linkages between pay and performance and improved communication with investors. Mandatory say on pay would be beneficial in the United States, both increasing shareholder value and making CEO pay fairer, thus reducing the likelihood of passage of other legislation to reduce income inequality, such as higher taxes on the rich.

Original languageEnglish (US)
Pages (from-to)434-457
Number of pages24
JournalCESifo Economic Studies
Volume55
Issue number3-4
DOIs
StatePublished - Dec 4 2009

Keywords

  • Corporate finance and governance
  • Executive compensation
  • Firm organization

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Economics and Econometrics

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