Regulating Executive Remuneration: International Developments in the Post-Scandal Era

Abstract

The problem of executive compensation was an underlying theme in international corporate scandals epitomized by Enron in the US, Parmalat and Vivendi in Europe, and One.Tel in Australia. There has been a wide array of regulatory responses to these scandals across jurisdictions, with varying degrees of attention paid to the issue of executive pay.

This article examines recent international responses regarding executive pay through the lens of regulatory strategy. Specific reforms and developments discussed in the article include: enhanced compensation disclosure; increased shareholder participation; and judicial review of board decisions about executive pay in case law such as the Disney litigation in the US and the Mannesmann trial in Germany.

These regulatory developments concerning executive pay are interesting from the perspective of the convergence/persistence debate in comparative corporate governance. They show that major international scandals of this kind may generate new divergence in laws across jurisdictions.

This article is a revised and updated version of a paper published in early 2006 in European Company Law. This updated version (forthcoming, 2006, ICFAI Journal of Corporate & Securities Law) includes a Postscript, containing a detailed discussion of the 2006 Disney decision, delivered by Jacobs J. on behalf of the Supreme Court of Delaware on June 8, 2006.

Keywords: executive compensation, remuneration, shareholders, directors, disclosure, directors' duties, comparative corporate governance, corporate scandals, regulation

JEL Classification: G30, G34, J33, K22, K33, K40, M14, M52, 016