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Hill, Jennifer G. --- "Regulating Executive Remuneration After the Global Financial Crisis: Common Law Perspectives" [2012] ELECD 609; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 11

Section Title: Regulating Executive Remuneration After the Global Financial Crisis: Common Law Perspectives

Author(s): Hill, Jennifer G.

Number of pages: 22

Extract:

11 Regulating executive remuneration after the global
financial crisis: common law perspectives
Jennifer G. Hill1


1 INTRODUCTION

Executive pay has become a regulatory flashpoint of the global financial crisis. In contrast
to the traditional non-interventionist approach to executive remuneration, it has galva-
nized regulators around the world to search for effective responses to the perceived
problem of executive remuneration.
Executive remuneration first became a prominent aspect of corporate governance in
the 1990s. A radical paradigm shift occurred at that time. Executive pay, which had until
that time been treated as a corporate governance problem associated with breach of
fiduciary duty (Yablon 1999, 279­80), was famously re-interpreted by Jensen and
Murphy as an issue of misalignment between managerial and shareholder interests
(Jensen and Murphy 1990). This transformation envisaged pay for performance as a
self-executing mechanism, which could achieve alignment of incentives. Executive
remuneration had, in effect, evolved from corporate governance problem to solution.
The primary focus under this paradigm shift became the design and structure of
optimal remuneration contracts (Bebchuk et al 2002; Core et al 2003). Other issues, such
as the pay-setting environment, managerial power and compensation levels were ren-
dered either minor themes or invisible (Hill and Yablon 2002). The transformation also
served to legitimise executive pay, by adopting a "just deserts" approach to remunera-
tion, offering the prospect of reward for superior performance and penalties for inferior
performance (Jensen and Murphy 1990; cf Frydman and Saks 2008, 2, 33).
Since the heyday of ...