CEO Compensation and the Responsibilities of the Business Scholar to Society

• Published in: Academy of Management perspectives 2008-05, Vol.22 (2), p.26-33
• Main Author: Walsh, James P.
• Format: Article
• Language: English
• Subjects: Benefit plans; Bills; Board of directors; Business management; Business structures; Chief executive officers; Compensation; Congressional voting; Corporate governance; Exchange: CEO Compensation; Executive compensation; Fairness; Job performance; Legislation; Overpayment; Pay for performance; Shareholders; Stockholders; U.S.A
• ISSN: 1558-9080; 1943-4529
• DOI: 10.5465/amp.2008.32739757

The AFL-CIO's Executive PayWatch reports that the average CEO in the S&P 500 made $14.2 million in 2007. On Mar 1, 2007, Representative Barney Frank (D-MA) and 27 co-sponsors, all fellow Democrats, introduced House Resolution 1257. Representative Frank would like a firm's shareholders to approve or disapprove, in a nonbinding fashion, the compensation arrangements for their firm's senior executives. One week later, Steven Kaplan, a distinguished finance professor from the University of Chicago, offered testimony in sharp disagreement with the plan. Professor Kaplan vigorously defends US corporate governance practices. He argues that "there can be absolutely no doubt that the typical CEO in the US is paid for performance". Unfortunately, his analysis and recommendation are based on a selective reading of the available evidence. It is also unfortunate that he never revealed his other interest in this compensation question: he currently serves on several boards.