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Aug 11

International Executive Compensation and Corporate Governance: How A Cross-Cultural Analysis of Executive Compensation Regulation Shows Diverging Trends in Corporate Governance

By: Cory Howard

 

Due to the recent global financial crisis, shareholders, voters, and politicians in North America and Western Europe have become increasingly concerned with the issue of executive compensation. New regulations, such as say-on-pay shareholder votes, tax incentives to reduce base salary, and hard caps on bonuses have been enacted in an attempt to slow the exponential growth in the value of executive compensation packages in the both the United States and Europe. This trend is not limited to developed nations, as in other regions, most notably in Asia, executive pay has risen dramatically, oftentimes with little or no oversight by government institutions or formal regulatory bodies. This article attempts to track how nations in different regions of the world regulate executive compensation and tries to extrapolate from that sample general tendencies in order to detect broader corporate governance trends. Using this methodology, this article identifies two basic trends: (1) one hemisphere is enacting strict legal mechanisms to control executive compensation, while the other relies on self-regulation and (2) one region is using executive compensation reform to open up access to the corporate governance arena for small investors, while the other is attempting to limit shareholder democracy.

 

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