Director's Remuneration Regulatory Developments, and Post Crisis Changes in the UK and the State of Delaware

Executive compensation have been a controversial issue since early 90's, and it became the subject of many studies, newspaper articles and books especially after the Enron scandal in the year of 2000. Corporate governance reforms were demanded by many academics and experts around the world including the issue of setting remuneration packages, as to who is the best to decide, and what are the procedures to follow. This paper aimed to present legislative development in the UK that controls this aspect of corporate governance. Also, development through case law in the State of Delaware will also be discussed. In addition, post crisis changes will also be presented in both jurisdictions; also the relationship between executive pay and the crisis will be demonstrated. Finally, this research will present several proposed solutions to the compensation dilemma. It must be said that this research only concerns with executives and managing directors who may have influence over the board as a whole in setting their pay and not with none executive directors. In the UK, there have been number of committees that produced recommendations to tackle this issue chief among them the Cadbury committee which mainly demanded more transparency and disclosures. In the State of Delaware, Corporate law had made it clear that setting remuneration is in the hand of the board, and Delaware's courts have adopted high standard of review in derivative action. There have been slight changes in both jurisdictions but, as seen by many, they are still not enough to solve the problem. Solutions such as making compensation committees more independent and giving more powers to shareholders in making compensation decisions are among most proposed solutions. The research concludes to an important relationship between compensation practices and the crisis. Current practices allows CEO's to be given high bonuses from short term profits, and this motivated them to take huge risks in order to raise their pay. These risky decisions have led to the failure of many “too big to fail” firms which caused the financial meltdown