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Executive Compensation in the Courts

By Harvard Law School Program on Corporate Governance

In the paper, Executive Compensation in the Courts: Board Capture, Optimal Contracting and Officer Fiduciary Duties, forthcoming in the Minnesota Law Review, my co-author, Harwell Wells, and I identify a theoretical impasse in our understanding of executive compensation and looks to recent developments in corporation law to find a practicable way out. At present, debates over executive compensation are waged between two scholarly camps. Advocates of Board Capture theory claim that, because boards of directors are dominated by corporations? chief executive officers, those CEOs are able to set their own compensation and take home pay packages that are both too high and provide too few incentives for improved corporate performance. Optimal Contracting theorists disagree; while admitting that some compensation packages are inequitable, these theorists contend that, given the constraints of the current legal and regulatory system, most current CEO compensation agreements should be pretty good, rewarding CEOs appropriately and, equally important, providing for increased shareholder value. Despite vigorous scholarly debate, however, little progress has been made in the theory of, and little done in practice to curb, excessive compensation packages.

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Full post as published by The Harvard Law School Corporate Governance Blog on June 07, 2010 (boomark / email).