Making Executive Compensation Less Controversial: The Rise of Pay Ratios

摘要

Developments in executive compensation have resulted in more legislation and regulations on executive pay being introduced over the past two decades than in the previous 150 years. Ever since the last financial crisis, executive compensation has remained high on the agenda of many authorities. When there are concerns about executive remuneration, legislators first of all try to find the remedy through increasing the level of transparency. Such a transparency measure, currently favoured by various countries, is the introduction of an obligation to publish the ratio between the remuneration of the average employee and that of the Chief Executive Officer (CEO), known as the pay ratio. In the United States and certain European countries, such as the United Kingdom and the Netherlands, such an obligation has already been introduced. Based on the Shareholder Rights Directive II (SRD II), all European countries must have adopted a similar regulation by June 2019.