Executive Compensation and Special Master Kenneth Feinberg

When Kenneth Feinberg was the special master in charge of the 9/11 Victim’s Compensation Fund, he faced the challenge of making difficult decisions in an emotionally charged public setting.  Yet, he was operating within the familiar conceptual framework of mass tort compensation.  Moreover, he had a fairly concise legislative mandate that guided his discretion.  Whatever one might think of individual decisions he reached for particular victims, he nevertheless was able to proceed from a principle – compensation based on lost earnings – that allowed him to make broadly reasonable decisions.

Despite the horror of 9/11 and the intensely emotional nature of his involvement with the victims’ families, Feinberg’s role as the Obama administration’s special master for executive compensation is perhaps more complicated, and certainly has much broader implications for corporations and society.  For one thing, the 9/11 victim’s had a choice to accept Feinberg’s recommendation or take their chances in the tort system; thus his recommendations did not have the mandatory effect of law.  Second, executive compensation decisions must strike a delicate balance.  Since the American taxpayer is a major stakeholder in companies that have received billions from the TARP, Feinberg’s mandates must increase the likelihood that these companies will thrive and thus must not be so punitive as to induce the exodus of top management (though some might favor such an outcome).  At the same time, he has the duel goals of assuaging public outrage and, aspirationally, perhaps establishing norms that might influence the autonomous compensation policy decisions of companies throughout the economy.

The mandatory nature of his decisions itself earns Feinberg the wrath of free market purists, and the complexity of his aims makes him the likely target of populist frustration.  And all of this pro bono.

So much for my introductory post.  Clearly there is much more to say about this topic, both in the context of Feinberg’s job and more broadly as a matter of corporate law and governance.  I'll continue to explore this territory in future entries.

Cheers.

MJB