Professor Lucian Bebchuk, LL.M. ’80 S.J.D. ’84 testified before the U.S. House of Representatives Committee on Financial Services on March 8 in a hearing on executive pay.
The hearings focused on proposed legislation that would require public companies to hold an advisory shareholder vote on the company’s executive compensation. Experts say shareholders need a way to check against a gap between executive pay and performance.
“Flaws in pay arrangements have costs beyond the excess amounts paid to shareholders,” said Bebchuk in his testimony. “Such flaws can dilute and distort the incentives of top executives.”
Recent high-profile executive dismissals at companies like Home Depot and Pfizer bring this issue to light. Ousted Home Depot CEO Robert Nardelli received a $210 million severance package despite the retailers slumping stock, and former Pfizer CEO Hank McKinnell received a $180 million package after being forced into early retirement.
Bebchuk is the William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and director of the Program on Corporate Governance at Harvard Law School. He is also the author of “Pay without Performance: The Unfulfilled Promise of Executive Compensation.”