Say on Pay, and the SEC Disclosure Rules: Expressive Law and CEO Compensation

Abstract

The debate over the lack of correlation between CEO compensation and performance has caused a divide amongst corporate law scholars. Proponents of intervention have predictably welcomed the legislative activity and have called for more. This article argues that the legislative and regulatory interventions by the state are in furtherance of the expressive functions of the law, and that even in the absence of sanctions such expressive laws can have an affect on behavior. It argues that while legislative and regulatory actions can express certain norms, they are ultimately unlikely to be of much help in behavior modification unless accompanied by norm internalization. Decentralized deployment of non-legal sanctions can offer a pathway to norm internalization in the CEO compensation area. Under this thesis, legislation only aids the deployment of social sanctions by virtue of its expressive function.

This paper will briefly describe the expressive function of the law, and provides an overview of legislative attempts at serving this expressive function. It posits that expressive law cannot succeed in the absence of norm internalization by CEOs and directors. This process of internalization requires large shareholders to incur the costs of socializing the relevant actors by leveraging the structural attributes of the corporate law system.