Reining in executive pay has been a hot topic especially in the aftermath of the housing crisis followed by the financial meltdown. To fend off a public backlash the house approved legislation ' the Corporate and Financial Institution Compensation Fairness Act of 2009', dubbed as 'say-on-pay' this legislation called for companies to set up advisory boards to oversee pay and allow shareholders to cast a non-binding vote on executive compensation pay. However this legislation is stuck in the senate.
Despite all these ongoing efforts to control executive compensation, I personally think that's executive compensation problems cannot be resolved by legislation. I read an article on the Institutional Investor written by David Adler in which he interviews a finance professor from Stanford: "Any regulatory restriction on compensation
can be and will be circumvented by any financial institution that wants
to do so," asserts Dirk Jenter, a finance professor and executive compensation expert at Stanford Graduate School of Business. "It's an open question
if the public mood will be appeased by subtle reforms like Say onPay rather than more draconian limits on executive pay , but it is crucial to understand that financial engineering is
what these institutions do for a living. If they want to pay an executive pay or a trader in a certain manner, they will find a way." I believe the best way forward is to tie executive compensation to the organization performance. If a company does well then the executives should be compensated well, otherwise they should feel the financial pain when their firms perform dismally.
Source: Adler, D. (2009). More to say on executive pay. Institutional Investor, (00203580), n/a-08+. Retrieved from http://search.proquest.com/docview/221507411?accountid=11920
