A Perspective on Regulatory Paradigms: The Case of IRS and Sarbanes-Oxley Approaches to Executive Compensation-Related Regulation

Posted: 28 Feb 2010

See all articles by Kenneth R. Ferris

Kenneth R. Ferris

Arizona State University - School of Global Management and Leadership

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management

Victoria Krivogorsky

San Diego State University

Date Written: February 28, 2010

Abstract

In this paper we explore two regulatory paradigms, with an emphasis on the regulation of executive compensation. An example of the traditional rule-based paradigm is Internal Revenue Code Section 162(m) in which a tax-deductible cap was passed into law to limit executive compensation. We demonstrate that this approach yielded mixed results. While stronger pay/performance sensitivity has been documented, Section 162(m) appears to have actually exacerbated the level of executive compensation. We contrast the rules-based paradigm with an alternative paradigm illustrated by the Sarbanes-Oxley Act in which the U.S. Congress introduced a series of corporate governance initiatives into federal securities law. The transformation of the mode of regulatory intervention as reflected by SOX is shown to be fully consistent with recent changes in the generally accepted conceptual framework for financial reporting.

Keywords: IRC Section 162(m), Sarbanes-Oxley Act, executive compensation, pay-performance sensitivity, conceptual framework

JEL Classification: G38, J33

Suggested Citation

Ferris, Kenneth R. and Wallace, James S. and Krivogorsky, Victoria, A Perspective on Regulatory Paradigms: The Case of IRS and Sarbanes-Oxley Approaches to Executive Compensation-Related Regulation (February 28, 2010). Research in Accounting Regulations, Vol. 21, No. 2, 2009. Available at SSRN: https://ssrn.com/abstract=1561253

Kenneth R. Ferris (Contact Author)

Arizona State University - School of Global Management and Leadership ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States
(909) 607-6063 (Phone)

Victoria Krivogorsky

San Diego State University ( email )

San Diego, CA 92182-0763
United States

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