Fascinating new paper by my colleague Steve Bank, along with Brian Cheffins and Harwell Wells:
CEO pay is a controversial issue in America but there was a time, often overlooked today, when chief executives were not paid nearly as much as they are now. From 1940 to the mid-1970s executive pay was modest by today’s standards even though U.S. business was generally thriving. What worked to keep executive pay in check? Economist Thomas Piketty and others credit high marginal income tax rates, leading to calls for a return to a similar tax regime. This paper casts doubt on the impact tax had and also shows that neither the configuration of boards nor shareholder activism played a significant role in constraining executive pay. It emphasizes instead the roles played by strong unions, a different and more circumscribed market for managerial talent, and social norms, explanations that do not easily lend themselves to generating modern policy prescriptions.
Executive Pay: What Worked? (July 20, 2016). Journal of Corporation Law, Forthcoming; UCLA School of Law, Law-Econ Research Paper No. 16-11. Available at SSRN: http://ssrn.com/abstract=2812349
Highly recommended despite the glaring omission of citations to yours truly.
