Law Commons^™

Cash Of The Titans: Arbitrating Challenges To Executive Compensation, Kenneth Davis

Kenneth R. Davis

Excessive executive compensation is endemic to U.S. corporations, and the trend is spiraling out of control. To challenge excessive pay packages, shareholders sometimes institute derivative suits. This approach has had limited success, however, because several principles of law – most notably the business judgment rule – shield directors from liability for awarding exorbitant pay to high-level managers. The business judgment rule removes the unreasonableness of compensation packages from the reach of judicial review. This Article proposes that corporations duly approve procedures to arbitrate shareholder challenges to excessive compensation agreements. Arbitration is uniquely suited for this purpose. Arbitrators are not bound …