Regulation and the Globalization (Americanization) of Executive Pay
Vanderbilt Law & Economics Research Paper No. 02-05
Columbia University Press, 2003
45 Pages Posted: 8 Aug 2002
Date Written: 2002
Abstract
This paper analyzes the question of whether there is a U.S.-oriented convergence trend in international executive pay. After surveying the essential elements of the American pay paradigm, we consider market-oriented dynamics that could constitute a global compensation imperative. We find that it is difficult to predict how decisive these forces will be, in part because market factors do not tell the whole story. Rather, it is necessary to take into account several other variables, such as legal regulation and business culture. These may stop convergence from occurring at any point in the near future. The primary purpose of this paper is to identify and analyze the variables that will determine whether executive pay convergence will occur along American lines; therefore, we do not assess in detail whether such a shift would be a "good thing." However, we do recognize the tension between the useful function of U.S.-style pay packages in aligning the interests of shareholders and executives, while also acknowledging that they can in certain circumstances constitute self-serving managerial "rent extraction." Also, the paper makes a significant normative contribution by identifying obstacles regulators will need to address if they want to promote convergence and by drawing attention to rules that could be invoked to hinder the Americanization of executive pay if this was thought to be the better way to proceed.
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