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CESifo Economic Studies Advance Access originally published online on March 20, 2009
CESifo Economic Studies 2009 55(3-4):434-457; doi:10.1093/cesifo/ifp004
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© The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation in America*

Ian Dew-Becker{dagger}

{dagger} Harvard University, Department of Economics, Littauer Center, 3rd Flr, Cambridge, MA 02138, USA.

This article reviews the history of executive compensation regulation in America and surveys the literature on the effects of these policies. CEOs are almost exclusively in the top 1% of the pay distribution, and regulation of their pay is seen as a well-targeted way of reducing income inequality. Mandatory disclosure of executive compensation has increased nearly uniformly since 1933. A number of other regulations, including special taxes on CEO pay and rules regarding votes on some pay packages have also been introduced, particularly in the last 20 years. However, there is little solid evidence that any of these policies have had any substantial impact on pay. I also review limited evidence from overseas on ‘Say on Pay’, recently proposed in the US, which would allow nonbinding shareholder votes on CEO compensation. The experiences of other countries have been positive, with tighter linkages between pay and performance and improved communication with investors. Mandatory say on pay would be beneficial in the United States, both increasing shareholder value and making CEO pay fairer, thus reducing the likelihood of passage of other legislation to reduce income inequality, such as higher taxes on the rich. (JEL-codes: J01, J08, J33, K22)

Key Words: corporate finance and governance • firm organization • executive compensation

* Prepared for the CESifo Summer Institute conference on executive compensation in Venice, June 17, 2008. I acknowledge support from an NSF graduate research fellowship. I appreciate helpful comments from Bob Gordon, Naomi Hausman, David Laibson, and Rebecca Fitzpatrick, and the participants at the CESifo Summer Institute.


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