The Politics of Pay: A Legislative History of Executive Compensation

Abstract

This paper explores the legislative history of executive compensation, starting with Depression-era disclosure regulations and ending with the ongoing implementation of the Dodd-Frank Act. Over the past 80 years, Congress has imposed tax policies, accounting rules, disclosure requirements, direct legislation, and myriad other rules to regulate executive pay. With few exceptions, the regulations have generally been either ineffective or counterproductive, typically increasing (rather than reducing) CEO pay and leading to a host of unintended consequences, including the explosion in perquisites in the 1970s, golden parachute plans in the 1980s, stock options in the 1990s, and restricted stock in the 2000s. Part of the problem is that regulation – even when well intended – inherently focuses on relatively narrow aspects of compensation allowing plenty of scope for costly circumvention. A larger part of the problem is that the regulation is often misintended, driven by political rather than shareholder agendas.

Keywords: Executive Compensation, Regulation, Disclosure, Stock Options, Corporate Governance

JEL Classification: G34, G38, J33, M48, M52