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Regulation and Pay for Performance

September 13, 2015 Leave a comment

Steven A. Bank an George S. Georgiev, (Ucla School of Law) recently exposed their view that although regulation is intuitive and well-intentioned, it nevertheless often fails in addressing the problems it is supposed to attack. (1)

They argue that the last 25 years of regulation on pay and performance, led by legitimate concerns on corporate malfeasance and underperformance as connected with inflated executive pay, have not actually been successful in reigning in executive pay.

Complexities introduced by different pieces of regulation have left space for gaming the rules and manipulation and created links among them and with other regulatory goals. The authors recall the case of the 1993 regulation that settled a limit on the deductibility of Ceo`s fixed pay on 1 USD million; they argue the limit soon became a salary floor, and the regulation led to a huge increase in variable pay through stock options and other tools. And the also recall certain cases, (years after the Dodd-Frank regulations were introduced) where executives received large sums of money and rewards while investors saw their wealth squeezed.

They expose how the link between pay and performance continues to be elusive, even if it was the main objective pursued by the 2010 Dood-Frank act. Some tips arise: Read more…

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