by Joseph E. Bachelder, for The Harvard Law School Forum at Harvard Law School, March 31, 2010.
For approximately 75 years (at least), the federal government has intervened in executive pay—in both direct and indirect ways. Two examples of direct intervention are Pay Controls (1971-74) and the current TARP program, introduced in 2008 in respect of financial institutions (and subsequently extended to two automotive companies) and still in effect as to many of these institutions. [1]
An example of indirect intervention is the SEC’s requirement, commencing in the late 1930s, of disclosure regarding compensation of certain top executives in the annual proxy statements of publicly traded companies. [2] (Ironically, in contrast to direct controls, a major consequence of the SEC’s indirect intervention through required disclosure has been an upward “tilt” to executive pay—the so-called “ratcheting effect,” as discussed later in the column.)
Direct Intervention
Federal pay controls. Due to inflationary pressures, in August 1971, the Nixon administration imposed a pay and price “freeze” for a 90-day period. At the end of that period, regulations strictly limiting pay increases generally (not limited to executive pay) were introduced that generally continued until April 30, 1974. Over the period of 35 years since pay controls ended, the impact of those controls is virtually zero, and it is doubtful that pay controls have any noticeable effect on levels of executive pay today…(continue reading)
