Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 1: The Politics of Pay: A Legislative History of Executive Compensation
1 Kevin J. Murphy 1 INTRODUCTION After a rare decline during the 2008–2009 Great Recession, CEO pay increased sharply in 2010. The median total realized compensation (including gains from exercising stock options) for chief executives in S&P (Standard and Poor’s) 500 firms rose 35 percent from 2009 levels, the largest year-over-year change in realized pay in at least four decades. This dramatic increase in realized pay is likely a harbinger of even greater increases to come, given massive unrealized gains in unvested stock and non-exercisable options that were granted mid-recession at or near the bottom of the stock market. The revelations of these pay levels – coupled with relatively high rates of unemployment – has fueled calls for regulating executive compensation even beyond the reforms imposed by the 2010 DoddFrank Act. Any debate over whether executive pay should be regulated must begin by recognizing that CEO pay is already heavily regulated, through tax policies, accounting rules, disclosure requirements, direct legislation, and myriad other rules stretching back nearly a century. In this chapter, I will explore the legislative history of executive compensation, starting with Depression-era regulations leading to the 1934 creation of the Securities and Exchange Commission (SEC), and ending with the ongoing implementation of the DoddFrank Act. I show that many common features and trends can be traced directly to government attempts to regulate both the level and structure of compensation for US executives. While the specific regulations have varied widely over time, I show that they share several common...
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