A Tax Response to the Executive Pay Problem

David I. Walker

Boston University School of Law

October 14, 2011

Boston Univ. School of Law, Law and Economics Research Paper No. 11-50

Many observers believe that that the public company executive labor market is deficient and results in systematically excessive compensation. This Article accepts that premise and considers potential regulatory responses. Specifically, this Article proposes and analyzes a two-pronged tax response to the problem of excessive executive pay – the imposition of a surtax on executive pay in excess of a threshold combined with investor tax relief. These two prongs respond to the chief concerns raised by excessive executive pay. The imposition of a surtax would reduce the after-tax income of executives, which would directly address the unfairness of excessive pay and the effect of excessive pay on inequality of resources. Investor tax relief would tend to reverse the inefficient distortion in capital allocation that results from excessive pay and would ensure that these distortions were not exacerbated by companies increasing executive pay to offset the surtax.

Number of Pages in PDF File: 62

Keywords: executive compensation, surtgax, tax incidence, managerial power

JEL Classification: G34, H22, H24, J33, K22, K34, M52

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Date posted: October 14, 2011 ; Last revised: January 17, 2012

Suggested Citation

Walker, David I., A Tax Response to the Executive Pay Problem (October 14, 2011). Boston Univ. School of Law, Law and Economics Research Paper No. 11-50. Available at SSRN: https://ssrn.com/abstract=1944115

Contact Information

David I. Walker (Contact Author)
Boston University School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
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