The Globalization (Americanization?) of Executive Pay

Abstract

In the United States, the remuneration packages of top executives are characterized by a strong emphasis on pay-for-performance and by a highly lucrative "upside." There is much discussion of the possibility that executive pay practices will globalize in accordance with this pattern. This Article assesses whether such convergence is likely to occur. After surveying briefly the key components of managerial remuneration and after examining the essential elements of the "U.S. pay paradigm," the Article considers market-oriented dynamics that could constitute a "global compensation imperative." These include wider dispersion of share ownership, more cross-border hiring of executives, growing international merger and acquisition activity, and expansion of business activity by multinational enterprises. The Article will also take into account possible obstacles to the Americanization of executive pay. These could arise from various legal sources (such as corporate law, tax rules, and labor law) as well as "soft law" and "culture." It must be recognized, however, that law could foster as well as hinder a move toward U.S.-style remuneration. For instance, the introduction of tougher disclosure rules seems particularly likely to have this effect. This Article does not assess in detail whether the Americanization of executive pay would be a "good thing." It makes a normative contribution, however, by identifying obstacles policymakers should address if they want to promote convergence. It also draws attention to strategies regulators might adopt if they conclude that a move towards U.S.-style compensation arrangements would be a mistake.