Conyon, Martin J. --- "Perspectives on the Governance of Executive Compensation" [2003] ELECD 90; in Waterson, Michael (ed), "Competition, Monopoly and Corporate Governance" (Edward Elgar Publishing, 2003)

Book Title: Competition, Monopoly and Corporate Governance

Editor(s): Waterson, Michael

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760894

Section: Chapter 11

Section Title: Perspectives on the Governance of Executive Compensation

Author(s): Conyon, Martin J.

Number of pages: 31

Extract:

11. Perspectives on the governance of
executive compensation
Martin J. Conyon

1. INTRODUCTION

Corporate governance, broadly conceived, refers to the complementary
mechanisms by which enterprises are owned, controlled and directed. As a
result corporate governance is central to understanding the performance of
firms and the wealth of nations. The primary areas of governance research
focus on the role of the Board of Directors; the importance of executive
compensation; the role of the market for corporate control and takeovers;
and the importance of concentrated shareholdings and monitoring by
financial institutions.1 This chapter deals with the governance of executive
compensation. Our objective is to explain some contemporary and domi-
nant trends in executive pay. In addition, we discuss competing paradigms
(`managerial power' versus `optimal contracting') for understanding com-
pensation outcomes at the apex of the modern corporation.2
The recent string of corporate scandals in the United States has cata-
pulted corporate governance to the centre of business debate and raised
fundamental questions about trust, integrity and the purpose of the cor-
poration. The allegations of accounting fraud and irregularities at Enron,
WorldCom and Global Crossing are by now well known. In addition,
recent attention has focused on potentially egregious and avaricious self-
dealing by corporate insiders. In June 2002, the Securities and Exchange
Commission filed charges against the former CEO of ImClone Systems
Inc. Samuel Waksal, for illegal insider trading.3 In September 2002 a report
by Tyco International Ltd said that it had uncovered tens of millions of
dollars ...