Reference no: EM132995679

What is Happening to Executive Pay?

Your text describes executive compensation as "a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options." There is a great deal of interest in setting executive compensation for public corporations. There are those with strongly held beliefs that the system is broken and pay is out of control. Those in this camp feel that Dodd-Frank finally puts some controls in place, particularly for those whose pay increases while firm performance lags. They also argue that shareholders are not well protected. Additionally those who feel Dodd-Frank is an overreach of regulation argue that free market mechanisms should allow the proper setting of executive compensation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contained some important regulations regarding executive compensation, in particular "say-on-pay" shareholder voting requirements and provisions that companies must disclose the relationship between executive compensation and firm performance. There also is a move to link these measures to Total Shareholder Return (TSR) as a way to align executive compensation.

Many pundits on both sides predicted significant changes to executive compensation as a result of the passage of this bill. Since a few years have passed, what has been the impact? Individually, research trends in executive compensation since the passage of the law in 2010.

Be prepared to answer the following questions:

1. What has happened to executive pay packages since passage of the act?
2. What is total shareholder return and how is it calculated? Provide an example.
3. Has there been any impact on long term incentive pay for executives?
4. Do you feel that the passage of Dodd-Frank as regards executive compensation has been effective?