I am wondering how business associations and corporations teachers approach executive compensation. After teaching now at two law schools, I’m still surprised how this hot-button issue does NOT provoke one of the more interesting class discussions of the semester. I wonder if it is because I look at executive compensation in discrete units – first in fiduciary duties and later in discussing the proxy system. Does it pay to revisit executive compensation again as a stand-alone issue?

Two things I do think are worth imparting about compensation. First, is a question about what causes high levels of compensation for executives. The law school environment tends to promote a sense that legal rules or failures of legal rules are the key drivers to all sorts of problems. The business associations world tends to use agency costs as its prime prism. But older economic scholarship on “superstars” suggests other potential causes to extreme disparities in salary, in particular when the market for high level employees expands to national or even global levels. The Times had a nice feature on this scholarship a few weeks ago that provides for an interesting link between the compensation of star athletes and executives.

Second, I aim to spend at least one class at the end of the semester talking about corporate reform – including but not limited to corporate social responsibility. One point in the lesson plan is to beware of unintended consequences for any reform you tout. Executive compensation and “pay for performance” is Exhibit B. Now questioned for lining the pockets of wealthy executives at the expense of shareholders, the movement began as a reform effort to address concerns about entrenched management.

Ideas on teaching executive compensation are more than welcome in the comments.

Business Organizations, Economics, Masters: Exec Comp, Teaching | Bookmark

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