How to Rein in Executive Compensation?

Abstract

This article examines various corporate governance and compensation design issues that contribute to excessive executive compensation. It discusses numerous reform efforts to curb excessive executive pay. It provides some legal scholars' comments on the Say on Pay bill and the SEC's new compensation disclosure rules. In response to the global financial crisis, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA). In order to stimulate a recessionary economy with tax cuts and spending, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA). The ESSA created the Troubled Assets Relief Program (TARP) to purchase distressed assets from financial institutions. The ESSA stipulates executive pay restrictions at recipient institutions of TARP funds. The ARRA amended the EESA's executive compensation restrictions. In addition to the ESSA and the ARRA, Congress vigorously proposed various legislative measures to rein in executive pay at recipient institutions of government bailout funds, and these proposed measures are described in this article. In order to stave off further regulations/legislative measures, corporations have to engage in voluntary efforts to rein in executive pay.