The Politics of Executive Compensation: Government Regulation in the Wake of 'Focusing Events'

Abstract

“Focusing events” increase the saliency of related issues and the likelihood that policymakers will respond with legislative action. The Great Depression and the present global financial crisis meet the criteria of focusing events which succeeded at making executive compensation a salient political issue. A systematic examination of all of the policy responses concerning executive compensation to these two economic crises illustrates how a single focusing event can result in symbolic changes, such as the compensation caps legislated for companies receiving assistance from the Reconstruction Financial Corporation (RFC) and the Troubled Asset Relief Program (TARP), and also significant changes that meet the criteria of a punctuated equilibrium, such as the compensation disclosure requirements enacted as part of the Securities Acts of 1934 and 1935, and the advisory, shareholder say-on-pay requirements enacted as part of the Wall Street Consumer Protection Act of 2010. The variety of responses to a single event is explained as a function of the extent to which the particular policy alternatives had previously been part of the policy agenda.