Document Type

Article

Publication Date

2013

Abstract

After the financial crisis, Congress directed regulators to enact new rules on C EQ pay at public companies. The rules would address the possibility that directors of public conpani es put ranagers'interests ahead of shareholderswhen setting executive pay. Yet little is known about how CEOs are paid in companies whose directors have undivided loyalty to shareholders. These directors car be fbund in companies owned by private equity firms-the savvy investors long renowned for their ability to maximize shareholier value. this Artic. presents the first study of how CEO pay in companies owned by private equity firms differs from CEO pay in public companies. The study finds that directors appointed by private equity tirms tie CEO pay much more closely to performatnce by preventing CEOs from selling, or "unloading," their holdings of the conpanss stock. -My ndings suggest that publiccorpan boards should also lirnit unloading to strengthen the CEO pay performartc link. Furthermore, reglators should require public corparties to disclose CEO stock holdings prominently. Both current law and post-crisis rulemaking emphasize transparency in pay levels rather than irincentives, a fbcus that perversely encourages directors to weaken the relationship between CEO pay and perfbrmance.

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This article was originally published in UCLA Law Review.

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