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Dealing With the Executive Pay Problem

By Harvard Law School Program on Corporate Governance

(Editor?s Note: This post is a letter to the editor of the WSJ responding to the op-ed by Lucian Bebchuk that appears on our forum here.)

Lucian Bebchuk’s suggestions regarding bank executive compensation didn’t go far enough in controlling levels of executive compensation and their growing inequities. Experts continuously present suggestions to link pay to performance through a variety of stock options and other mechanisms. None of them is impervious to the gaming which takes place, and none has halted the escalation.

The responsibility to set and monitor compensation is in the boardroom. Boards have avoided that responsibility and remained tone deaf to the public’s concern. Structuring transparent, understandable fair compensation, even in the millions-of-dollars range, is one thing; failure to consider the risk of perverse escalating outcomes and perks is another. Institutional shareholders have the voice and capacity to put spine in the boardroom by communicating on compensation to Compensation Committees, filing proxy resolutions, and voting against directors believed to be improvident. Then, in turn, they should report to their beneficiaries what they have done.

Full post as published by The Harvard Law School Corporate Governance Blog on February 25, 2009 (boomark / email).