A Critical Analysis of Legal Implications for the Executive Remuneration

Abstract

This research examines the legal precedents that allow the disproportional increase in the executive pay at the UK and the US based corporations. At its core, the argument explores incompatibility of the regulatory instruments with the corporate practices used to issue the excessive compensation packages for the Chief Executive Officers and their teams. Starting from the analysis of the authority and information asymmetry, the focus of research narrows on the current regulatory instruments and outcomes they produce. The goal is to discover how CEOs can achieve the higher compensation while violating no existing Government guidelines on the executive pay and regulations of the corporate governance. The existence of legal consequences under study as to the impact that the executive pay creates on the rights of shareholders. Consequently, the question is explored as to what extent the decrease of dividends and retained earnings were affected as a result of a CEO’s pay. By analysing existing regulatory instruments and by showing how they are circumvented, this research considers what changes may be necessary to the executive compensation policies, protection of dividends, and guarantee of voting rights for all shareholders and stakeholders in a publicly traded corporation.