Pros And Cons Of Executive Pay
Since the time of FDR the press, the general public, politicians, and academics have questioned the validity of high CEO pay. Following World War II, executive compensation was growing, but at a relatively slow rate of 0.08%, this was up until the mid 1970’s. Then for some reason the growth rate accelerated, increasing by an astounding average of 212% (Frydman and Jenter, 2010). This rapid growth can be traced back to Milton Rock and Edward Hay who brought about “peer groups” as a means of evaluating executive compensation. These peer groups essentially rigged the compensation system where all CEO’s are seen to be above the median, therefor their pay increases continuously (Elson and Ferrere, 2013). Attacks on this excessive executive pay
…show more content…
Many Americans believed excessive executive pay to be a reason for job lay-offs over the previous decade. It comes as no surprise then that many candidates, both republican and democrat, spoke out against high executive pay. As the campaign evolved, Bill Clinton expressed his plan to limit the corporate tax deductibility of excessive CEO pay, excessive being an income over $1 million. Clinton frequently expressed the view that pay needed to be tied to performance. Nonetheless, in the early days of the Clinton administration, when reports of his intention to exempt all “performance-based pay” from the deductibility cap were released, some perceived him to be flip-flopping on the issue to gain support (Lublin 1993). Due to worry about the loss of deductibility, we saw people rushing to exercise their stock options before the end of the 1992 calendar year. Some big public firms even announced consideration to return to private ownership. In April of 1993 following Clinton’s presidential victory, the administration submitted its proposal to Congress and the provisions, which for the most part remained unchanged, were included in the Omnibus Budget Reconciliation Act of 1993. Of these provisions, the ones relating to executive compensation are codified in section
Many Americans believed excessive executive pay to be a reason for job lay-offs over the previous decade. It comes as no surprise then that many candidates, both republican and democrat, spoke out against high executive pay. As the campaign evolved, Bill Clinton expressed his plan to limit the corporate tax deductibility of excessive CEO pay, excessive being an income over $1 million. Clinton frequently expressed the view that pay needed to be tied to performance. Nonetheless, in the early days of the Clinton administration, when reports of his intention to exempt all “performance-based pay” from the deductibility cap were released, some perceived him to be flip-flopping on the issue to gain support (Lublin 1993). Due to worry about the loss of deductibility, we saw people rushing to exercise their stock options before the end of the 1992 calendar year. Some big public firms even announced consideration to return to private ownership. In April of 1993 following Clinton’s presidential victory, the administration submitted its proposal to Congress and the provisions, which for the most part remained unchanged, were included in the Omnibus Budget Reconciliation Act of 1993. Of these provisions, the ones relating to executive compensation are codified in section