View article

In the aftermath of the financial crisis of 2008-2009, many believe that executive pay arrangements might have encouraged excessive risk-taking and that fixing those arrangements will be important in preventing similar excesses in the future. 1 These beliefs have led firms and public officials to seek compensation reforms that would eliminate excessive incentives to take risks. For those companies receiving government aid, the Troubled Asset Relief Program (TARP) bill, subsequent US legislation, 2 and regulations implementing such legislation 3 require the elimination of compensation structures that provide excessive risk-taking incentives. Furthermore, legislators and regulators have moved toward regulating compensation structures in all financial firms to eliminate such incentives. The US House of Representatives voted in favor of a bill (now to be taken up by the Senate) authorizing such regulations, 4 and the …