In the wake of the financial crisis, executive compensation and the possibility that top managers' incentives contributed to the upheaval has become the subject of intense scrutiny from legislators, regulators, and the press. This course will explore the forces shaping executive pay at large corporations, and whether those forces are adequate to ensure that compensation design maximizes shareholder and social welfare. We will begin from a theoretical perspective, surveying recent academic assessments of the divided interests of the corporate directors who bargain with executives over compensation. We will then consider the economic incentives associated with common pay arrangements, including stock options, deferred compensation and so-called "golden parachutes." Next, we'll examine existing regulation of executive pay and several proposed new approaches, including recent attempts to restrict compensation at firms that received federal assistance and their observed and potential consequences on bargains between directors and executives. Finally, we will consider whether additional regulation is warranted, giving special attention to the particular case of compensation at financial institutions. We will be joined in our work by guest speakers who are involved in the executive compensation debate, including practitioners and government officials.
Because we will cover subject matter touching on securities regulation and corporate law, the seminar may be of particular interest to students contemplating practice in those fields. Students will write four reaction papers in preparation both for our weekly meetings and for submission of a longer paper at the end of the semester.