Corporate
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- Date Submitted: 06/17/2011 08:20 AM
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CORPORATE GOVERNANCE AND
EXECUTIVE REMUNERATION: REDISCOVERING
MANAGERIAL POSITIONAL CONFLICT
JENNIFER HILL* AND CHARLES M YABLON**
I INTRODUCTION
Excessive CEO pay is the mad cow disease of American boardrooms. It moves from company to company, rendering directors incapable of applying common sense.
-- J Richard Finlay, Chairman, Center for Corporate and Public Governance.1
The recent succession of high profile corporate collapses, such as HIH and One.Tel in Australia and Enron and WorldCom in the United States, sent a clear Shakespearian message that there is often a misalignment between appearance and reality in the commercial world. It is interesting to note the extent to which executive remuneration appears as a subtext in many of these collapses.2
There is a tendency to view executive remuneration as a specialised topic, isolated from other areas of corporate law. Yet such segregation is misleading and may lead to dangerous tunnel vision. Executive remuneration presents traditional problems of corporate governance in a highly concentrated form. Nowhere else do the conflicts of interest in corporate governance lie so close to the surface.
Other areas of corporate law may also have important implications for executive remuneration, and it is therefore necessary to consider managerial compensation within this broader context. Professor Eisenberg has spoken of management’s ‘positional’ conflict of interest,3 due to the broad range of its discretions and relative autonomy within the public corporation. Failure to consider executive remuneration within the larger corporate framework can disguise the way in which management’s broad discretions in other areas of corporate law may affect executive remuneration.4
The last decade saw a dramatic shift in the US towards performance-based pay, coupled with large option grants. This potent mix of remuneration devices contributed to huge pay rises for American chief executive officers (‘CEOs’).5
Commercial...
EXECUTIVE REMUNERATION: REDISCOVERING
MANAGERIAL POSITIONAL CONFLICT
JENNIFER HILL* AND CHARLES M YABLON**
I INTRODUCTION
Excessive CEO pay is the mad cow disease of American boardrooms. It moves from company to company, rendering directors incapable of applying common sense.
-- J Richard Finlay, Chairman, Center for Corporate and Public Governance.1
The recent succession of high profile corporate collapses, such as HIH and One.Tel in Australia and Enron and WorldCom in the United States, sent a clear Shakespearian message that there is often a misalignment between appearance and reality in the commercial world. It is interesting to note the extent to which executive remuneration appears as a subtext in many of these collapses.2
There is a tendency to view executive remuneration as a specialised topic, isolated from other areas of corporate law. Yet such segregation is misleading and may lead to dangerous tunnel vision. Executive remuneration presents traditional problems of corporate governance in a highly concentrated form. Nowhere else do the conflicts of interest in corporate governance lie so close to the surface.
Other areas of corporate law may also have important implications for executive remuneration, and it is therefore necessary to consider managerial compensation within this broader context. Professor Eisenberg has spoken of management’s ‘positional’ conflict of interest,3 due to the broad range of its discretions and relative autonomy within the public corporation. Failure to consider executive remuneration within the larger corporate framework can disguise the way in which management’s broad discretions in other areas of corporate law may affect executive remuneration.4
The last decade saw a dramatic shift in the US towards performance-based pay, coupled with large option grants. This potent mix of remuneration devices contributed to huge pay rises for American chief executive officers (‘CEOs’).5
Commercial...