Are CEOs paid too much?

There are few better examples of the “relational” contract than the employment agreement between a corporation and its CEO.  It’s funny how few contracts scholars have analyzed the issues, but they’re grist for the mill of our corporate colleagues.  In a new working paper, UCLA’s Stephen Bainbridge asks the question, Executive Compensation: Who Decides?:

Pay Without Performance: The Unfulfilled Promise of Executive Compensation by Harvard law professor Lucian Bebchuk and UC Berkeley law professor Jesse Fried is an important contribution to the literature on executive compensation.  Bebchuk and Fried’s positive account of executive compensation is entirely managerialist; i.e., they argue that top management of public corporations so thoroughly control the board of directors that the former are able to extract compensation packages from the latter far in excess of that which would obtain under arms’-length bargaining.  In this review essay, I argue that Bebchuk and Fried overstate the extent to which management controls the compensation process. I also argue that they have not mde a convincing case for the reforms to corporate  governance they propose.