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Changing social norms and CEO pay: the role of norms entrepreneurs

Gopalan, Sandeep (2007) Changing social norms and CEO pay: the role of norms entrepreneurs. Rutgers Law Journal, 39 (1). pp. 1-58. ISSN 0277-318X

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Abstract

There is an overwhelming sense of outrage and anger at perceived excesses in CEO compensation ensuring regular coverage in the popular press, and making it, arguably, the most pressing question in current corporate law. There is scarcely a day when institutional shareholders, labor unions, politicians, and small investors are not calling for action to address this alleged menace. Inevitably, the heightened scrutiny and often shrill advocacy has contributed to the apparent disesteem for CEOs, with some polls showing that only seventeen percent of the public expect CEOs to tell the truth, in contrast with twenty-five percent for members of the U.S. Congress. This state of affairs has fuelled a vigorous debate about the desirability of regulatory intervention to address the problem, with no discernible agreement about the nature and extent of regulation. The populist nature of the cause has prompted politicians to enter the fray and recent years have seen activity in Congress and the SEC. Parallel to these developments, norms entrepreneurs have been active in creating social norms and enforcing them with social sanctions, with some modicum of success, suggesting that regulatory intervention might be premature until the ramifications of these actions are better understood.6 There is some evidence of apparent declines in executive compensation following the secondary enforcement of social norms. If existing social norms can be leveraged or new norms can be created, the behavioral change necessary for constraining CEO greed might be attained at a lower cost. This is salient in corporate law since the experience with legal sanctions has not been particularly satisfactory. The law might also interact with social norms in salutary ways, a perception that might explain the efforts by norms entrepreneurs and other actors to seek legislative intervention.

Item Type: Article
Keywords: social norms; CEO pay; norms entrepreneurs; CEO compensation; corporate law; executive compensation;
Subjects: Social Sciences > Law
Item ID: 2413
Depositing User: Prof. Sandeep Gopalan
Date Deposited: 08 Feb 2011 17:11
Journal or Publication Title: Rutgers Law Journal
Refereed: Yes
URI:

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