Corporate Culture and the Problem of Executive Compensation

In this commentary on Bebchuk and Fried's Pay Without Performance, the former SEC Chairman begins by declaring, "I have problems with exorbitant executive pay precisely because I care about markets and private enterprise. These huge paychecks. undermine corporate governance and send a signal that boards are willing to spend shareholders' money lavishly and with too little oversight." The author calls for a number of regulatory reforms, including expensing of stock options, broader and more complete disclosure of compensation, greater independence of directors, and empowerment of shareholders. At the same time, he notes that corrective market forces are already at work in the form of companies like Institutional Shareholder Services that monitor corporate governance and decision-making.