Key Policy Changes Affecting Executive Compensation Contracts

<div> The piece presented here is a small part of a much extended and detailed project that I have been working on at the Stigler Center with Prof. Raghuram Rajan and Prof. Luigi Zingales.&nbsp;Herein, I present a comprehensive overview of the key regulatory and tax policy changes that&nbsp;have affected executive pay contracts starting from 1950 till 2020. The piece is divided into&nbsp;<span>three sections. Section 1 – This section deals with all the key tax policy and regulatory changes that have taken place from 1950 onwards, which have affected executive pay contracts in a serial&nbsp;manner. The section covers all the key policy changes in detail. Section 2 – This sectioncovers the impact of the policy changes discussed in Section 1 and goes into deeper detail in&nbsp;</span><span>terms of explaining how and why the policy changes have affected executive pay contracts andhow firms have responded and adapted themselves to these changes. The section covers the time 1970 to 2002 as it is the most interesting period in terms of understanding executive pay contracts and executive pay levels. As it is during this period, we observe moderate to exponential&nbsp;growth in CEOs’ average and median pay levels as it has been presented extensively in the executive compensation literature. In Section 3 – we study the period 2002 to 2006 when everything unraveled, from the Enron Scandal to the options backdating scandal. This section explores how the government tackled one of US Corporate history’s biggest corporate frauds&nbsp;and scandal. Overall, herein, I present these events along with data and changes in corporate&nbsp;</span><span>governance to illustrate how important it is to consider political factors when studying executive&nbsp;compensation and trying to explain the trends over the years. This piece is part of a much&nbsp;more elaborate project that I have been working on, which revolves around understanding how the purpose of the modern-day corporation has evolved over time and what factors have led to this evolution. Tax policy and regulatory changes are just one dimension of this project but&nbsp;are one of the key dimensions that has allowed us to understand how politics and democratic&nbsp;institutions work in tandem with corporations, resulting in sometimes good results and, more often than not, bad results.</span><span><br></span> </div>