Executive Compensation: Populist Sentiments Hiding Social Values (Hebrew)

Abstract

The regulation of executive compensation is like the phoenix of corporate debate. Every once in a while it rises from the ashes, dominates public debate with strong statements regarding efficiency, justice, and what managers "deserve" - and returns to rest until the next time populist sentiments are stirred. In this paper I sketch out the different issues raised in public debate on the matter, and focus on the social values implicitly expressed: the debate regarding the role of corporations in society.

Through arguments and public outcry regarding executive compensation, the question implicitly raised but not directly addressed is how much the corporate entity is a private concern (and then, of whom) and how much it is a public issue - relying on a legal framework created (and subsidized) by society at large, and thus owing explanations for contracts it initiates, including those with its executives.

This paper addresses the call for compensation-limiting legislation in Israel, and suggests reading between the lines of populist rhetoric to address the social values expressed therein. I discuss the different market failures argued to justify regulation, and conclude that while some of them have some merit, they pose as intellectual facade and justification for unarticulated views the underlying issue (Hebrew).

Note: Downloadable document is in Hebrew.

Keywords: Executive Compensation, Corporate Governance, Principal-Agent Problems

JEL Classification: D23, G32, G34, G38, J33, J44, K22, M14, M52