Governing Foolishness: A Comparative Analysis of Executive Compensation Rules

Michael P. Malloy, Governing Foolishness: A Comparative Analysis of Executive Compensation Rules, in Economy and Commercial Law - Selected Issues 31 (David A. Frenkel, ed., Athens Inst. for Educ. & Res. 2013). This paper explores three approaches to limits on executive compensation as responses to the current financial crisis. Each approach has been established or endorsed by a different policy making institution. The first approach is the executive compensation provision of the Dodd-Frank Act, which was enacted as the U.S. Government’s principal response to the financial crisis. The second approach is the European Commission’s Green Paper on executive compensation, issued just weeks before enactment of the DFA and with much the same intention. The third approach is a set of non-binding guidelines issued by the Basel Committee on Banking Supervision based at the Bank for International Settlements in Basel, Switzerland. Only the third approach is specifically intended for use in the supervision of financial services firms; the other two impose or recommend requirements on executive compensation. Despite a flurry of public attention over a few causes célèbres, in which corporate executives had their compensation threatened or actually curtailed, current empirical data on executive compensation strongly suggest that these limitations on executive compensation are of negligible effect. The paper argues that these limits are a distraction from the real issues in the financial services markets, like, for example, fraud, manipulation, gross negligence during the run-up to the crisis.https://scholarlycommons.pacific.edu/facultybooks/1007/thumbnail.jp