The 2000s witnessed two periods in which business crises and poor management put the broader economy at serious risk. In the wake of the governance scandals of 2001 and 2002, Congress passed the Sarbanes–Oxley Act (SOX), with the goal of reforming the way in which publicly traded firms reported their results and auditors verified them, and following the economic crisis of 2007–09, Congress passed the Dodd-Frank Act, which in addition to strengthening the regulation of the financial industry, included several provisions regarding executive compensation at all publicly traded corporations. Together these pieces of legislation represented a major historical break, as prior to 2002, the federal government played a minimal role in corporate governance. With specific regard to executive compensation, these laws were the first steps the government took in the realm since 1993, when Congress directed the Internal Revenue Service (IRS) to limit the tax-deductibility of cash compensation for the top-five employees at a firm.

External to the firm, executive compensation occupies a prominent place in political debate for three reasons. First, many recent corporate scandals featured shocking tales of lavishly compensated executives that both the mainstream and financial presses heavily reported. Second, with retirement risks shifting from corporations to individual workers – principally through the move from defined benefit to defined contribution retirement plans – more Americans own stock and face greater risk from fluctuations in the equity markets created by executive malfeasance, providing increased incentives for public officials to monitor corporate behavior.