Since the advent of the modern corporation, executive pay has been vilified by the media, targeted for reform by activists, and regulated by the government. For the most part, the free market forces that gave rise to and underpin the successful pay-for-performance model have enabled executive pay to withstand the onslaught. However, never before have companies witnessed such an intense confluence of events and a convergence of external forces seeking to reshape the design, delivery, and disclosure of executive compensation.

In a world in which executive pay will be scrutinized, regulated, and revealed in an unprecedented fashion, understanding the external pressures that are creating this new context is a precursor to effectively designing executive pay programs.

Characteristics of external forces

Two characteristics mark these external pressures. First, their intensity rises and falls in a pattern that follows the broad outlines of the business cycle and cyclical movements in the stock market. Historically, during times of relative economic prosperity and rising stock prices, high levels of executive compensation received little attention.