Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 2: U.S. Executive Compensation in Historical Perspective
Harwell Wells* 1 1 INTRODUCTION To understand executive compensation we must understand its history. That history is surprisingly long; for almost a century Americans have fought over how much, and how, those who run giant corporations should be paid. It sweeps broadly, for questions of executive compensation are tied not only to issues of internal corporate governance but to the evolution of the U.S. industrial system, corporate disclosure and privacy, the tax system, the balance of power in the national political economy, international economic competitiveness, and Americans’ basic intuitions of fairness and justice. And it is illuminating. The history of executive compensation does not merely provide colorful anecdotes or a backdrop to current debates; it is essential to understanding today’s executive compensation. The history breaks into three parts: (1) the origins of modern executive compensation in the decades before World War II, during which executive compensation developed and, in the 1930s, first attracted national attention; (2) the postwar period from the 1940s to the 1970s, when executive compensation’s growth slowed and it receded as a major public issue; and (3) the current phase, beginning in the mid-1970s, when it began to grow at a faster clip even as average workers’ wages stagnated, and so again became a focus for public outrage and new debates over how the giant corporation is to be governed. This chapter cannot hope to address all issues raised by the development of executive compensation. It instead recounts the growth of executive compensation over the past century,...