Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, April 27, 2008

Rosen on Executive Compensation

Who Killed Katie Couric? And Other Tales from the World of Executive Compensation Reform, by KENNETH M. ROSEN, University of Alabama - School of Law, was recently posted on SSRN.  Here is the abstract:

With average Americans perturbed about executive pay, government officials are taking action. Officials appear to be racing against each other to battle corporate excess. The U.S. Securities and Exchange Commission (SEC) engaged in major rulemaking related to the disclosure of executive compensation, and Congress quickly considered executive compensation legislation. More reform, however, is not always better. Concurrent reform by multiple regulators presents perils.

This Article adds to the dialogue about scandal-driven reform. While much discussion exists about the advisability of particular reforms, the focus here is on the process of reform. The Article conducts a comparative analysis of the SEC and House of Representatives' reform processes, which reveals that different policy-making processes may be more or less likely to yield positive reforms. The Article argues that promoting distinct, more delineated roles for certain public actors could improve synergies between regulatory reform efforts.

Part I explores how the SEC's response to the public notice and comment process for its compensation disclosure rulemaking shows how administrative agencies properly can tailor regulation in a deliberative fashion. Part II then provides the contrasting story of the House's passage of H.R. 1257 that illustrates the pitfalls of scandal-driven reform. Unfortunately, the House's actions followed disturbing trends in mandating content for SEC regulation and in failing to account adequately for synergies between concurrent regulatory efforts.

Part III concludes by suggesting a framework identifying when congressional action on business regulation seems most appropriate given concurrent regulatory efforts. The Article identifies Congress's important potential role in settling authority issues, providing oversight to administrative agency reforms, and being prepared to intervene when agencies are recalcitrant about enacting necessary rule changes. In offering this framework, the Article moves beyond executive compensation issues to see how Congress might deal with other crises of confidence in business regulation. Areas for potential application of the framework include the regulation of hedge funds, imported toys and other consumer products, proxy voting, and subprime lending.

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