Excessive Executive Compensation - (Principal Symptom of Poor Corporate Governance) Causes and Remedies

Abstract

Advantageous accounting and tax treatment caused service-based stock options to be the major contributor to excessive executive compensation. All of the decision makers knew or should have known that such treatment was bogus. The lawyers and accountants were the enablers but the members of the corporate compensation committees were happy to have the cover.

It appears that the abuses will end. Hundreds of corporations have voluntarily rejected the bogus accounting treatment, and the Financial Accounting Standards Board will soon change the accounting treatment for all corporations.

The most important step, however, is the new rules adopted by the Nasdaq and the NYSE that will require independent directors to fix executive compensation. (The original publication referred to those rules as proposed - they have since been finalized). Those rules will be more effective than the Sarbanes-Oxley provision passed by Congress in stopping the abuses.

Keywords: Corporate Governance, excessive executive compensation, compensation committees, independent (outside) director, Nasdaq, NYSE, rules for independent compensation committees, Sarbanes-Oxley Act