Franklin Strier: Putting the Cap on Executive Compensation

Professor of business law Franklin Strier has a chapter on “Reform Proposals” in the forthcoming book, “The Handbook of Trial Consulting,” which will be released by Springer next month. The volume examines trial consulting as a form of applied psychology. In the chapter he wrote, Strier examines issues such as the effectiveness of trial consultants, the assurance of an impartial jury, and public perception of trial jury legitimacy under the influence of a trial consultant.

“Trial consulting is fast becoming de rigueur in major litigation,” says Strier. “Coinciding with the growth, however, have been mounting concerns. There are no meaningful or binding ethical standards governing the consultant’s relations with clients, the court or prospective jurors. This chapter examines these issues and considers the prospects of various responsive proposals for reform.”

In addition, Strier has published two articles on executive compensation. “Runaway CEO Pay? Blame the Boards” appeared in the IUP Journal of Corporate Governance in July and “What the Private Sector Can Do to Corral Runaway CEO Pay” was featured in the summer issue of the Southern Business Review.

An expert on legal aspects of executive compensation, Strier says that despite the economic downturn and poor corporate performance, extravagant CEO pay packages continue to exist.

“A combination of shareholder impotence, director self-interest and CEO domination has rendered many board directors favorably disposed—if not beholden—to overpay a corporation’s CEO at the expense of its stakeholders,” Strier says. “These pay packages reflect a lapse of corporate governance and a breach of the fiduciary duties of the corporate boards.”

Strier says that the most publicly discussed remedy to excessive CEO pay would be to get non-binding shareholder approval of proposed salaries. He advocates “clawback” provisions, wherein contracts require CEOs to repay part of their salaries to companies in the event of a downturn in profits or because of their own financial misconduct. He also would like to see different people serving as CEOs and board chairs instead of the increasingly common practice of those positions being held by the same person.

“The main role of the board is to oversee top management,” says Strier. “Having one person serve in both roles is akin to the fox guarding the henhouse.”

Strier says that the ensuing public outrage over extravagant CEO pay in the face of fiscal challenges has resulted in a demand for corrective action. He says that measures such as empowering shareholders whose financial interests are most directly affected by runaway CEO pay and structure changes in corporate governance are steps toward effective reform.

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