Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 22: The EU and Executive Pay: Managing Harmonization Risks
Niamh Moloney 1 INTRODUCTION: THE EU CONTEXT The purpose of this chapter is to place the executive pay debate, and particularly the debate as to whether legal intervention is warranted, in the context of the European Union (EU). Why take a regional approach to executive pay? It might be argued that jurisdictional scope might be better framed in terms of either the domestic or international contexts given the strong local path-dependencies which can influence rule design and the impact of the global competition for executive talent. Nonetheless, for a number of reasons, the EU’s regional experience with executive pay is useful. Given the corporate ownership rift which runs across the EU, the EU provides a useful laboratory for examining how executive pay and executive pay regulation behave in dispersed ownership and in block-holding ownership conditions, and in relation to different agency problems and different managerial incentives. The EU’s experience with the harmonization of executive pay rules is relevant to the debate on the dynamics of harmonization and regulatory competition internationally, given current moves, albeit in the financial stability context, to develop an international approach to pay in systemically important financial institutions (Financial Stability Board 2009 a and b and 2010 a and b). The EU’s recent reforms to executive pay (European Commission 2009a and 2009b; European Parliament and Council 2010) usefully illustrate the risks which follow legislative intervention. In particular, they highlight the dangers which arise where legislators deviate from a shareholder incentive alignment model as the basis for intervention,...
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