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2 See Karl Okamoto & Douglas Edwards, Risk Taking, 32 Cardozo L. Rev. 159 (2010); Johnson, Kristin, Addressing Gaps in the Dodd-Frank Act: Directors’ Risk Management Oversight Obligations, 45 U. Mich. J. L. Reform 55 (2011-2012); Bebchuk, Lucian & Spamann, Holger, Regulating Bankers'Pay, 98 Geo. L.J. 247 (2010); Tung, Frederick, Pay for Banker Performance: Structuring Executive Compensation for Risk Regulation, (Emory Public Law, Research Paper 10–93, 2010), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1546229 (last accessed: 27 June 2013).Google Scholar

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4 See Andrew Lund & Gregg Polsky, The Diminishing Returns of Incentive Pay in Executive Compensation Contracts, 87 Notre Dame L. Rev. 677, 686, 715, 727 (2011-2012), arguing that, given the recent progress of corporate governance reforms, structures, monitoring and control mechanisms, the overemphasizing on incentive pay contracts is likely to be counterproductive and exceedingly costly because of its complementarity with the newly reformed corporate governance mechanisms. This view certainly underestimates the potential of powerful agents such as company executives to exert influence on other company officials/agents and to neutralize the general checks and balances that have been put in place; Ira Kay, CEO Pay for Performance: The Solution to Managerial Power Symposium on Bebchuk & Fried's Pay without Performance, 30 J. Corp. L. 785 (2004-2005); Olson, John, Professor Bebchuk's Brave New World: A Reply to the Myth of the Shareholder Franchise Essay, 93 Va. L. Rev. 773, 783 (2007), stating that Professor Bebchuk's “concerns about [issues such as] executive compensation excesses can best be addressed by greatly enhanced disclosure requirements within the present director nominations and proxy regime, rather than by fundamentally altering the balance between directors and shareholders”; Norman Veasey, Stockholder Franchise is Not a Myth: A Response to Professor Bebchuk, the Essay, 93 Va. L. Rev. 811, 811–12 (2007), arguing that “[w]hat is not needed at this juncture is a lurching change in the name of ‘reform’ that might upset the existing balance of law and culture”; Martin Lipton, Memorandum of Martin Upton from Wachtell, Lipton, Rosen & Katz to clients, Directors Face-To-Face Meetings With Institutional Investors On Corporate Governance Policies And Practices (June 28, 2007), available at: http://www.realcorporatelawyer.com/pdfs/wlrk062907.pdf (last accessed: 27 June 2013), stating that “[t]here is no justification for revolutionizing corporate law and corporate practices so that shareholders replace directors as the fundamental arbiters of corporate policy”; Martin Lipton & William Savitt, Many Myths of Lucian Bebchuk, the Essay, 93 Va. L. Rev. 733 (2007).Google Scholar

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6 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111- 203, 123 Stat. 1376 (21 July 2010).Google Scholar

7 Michael Porter, Capital Choices: Changing The Way America Invests In Industry, 42–49 (1992); Bushee, Brian, Do Institutional Investors Prefer Near-Term Earnings Over Long-Run Values?, 18 Contemp. Acct. Res. 207, 213/14 (2001), revealing in their studies that managerial short-termism is induced by transient institutional investors who seek almost exclusively short-term rents.Google Scholar

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9 Cf. Johnson, Kristin, supra note 2, at 55.Google Scholar

10 Cf. Hurt, Christine, Regulating Compensation, 6 Ohio St. Entrepren. Bus. L. J. 21, 60 (2011).Google Scholar

11 Cf. Steve Bradford & David Skeel on the Dodd-Frank Act, Business Law Prof Blog (25 Jan. 2011), http://lawprofessors.typepad.com/businesslaw/2011/01/davidskeel-on-the-dodd-frank-act.html (last accessed: 27 June 2013), describing corporate governance provisions of Dodd-Frank as “a very minor part of the Act”.Google Scholar

12 Cf. Cch Attorney-Editor Staff, Dodd-Frank Wall Street Reform And Consumer Protection Act: Law, Explanation And Analysis 420–21, 423 (2010).Google Scholar

13 See e.g. Barclift, Jill, Governance in the Public Corporation of the Future: The Battle for Control of Corporate Governance, 15 Chap. L. Rev. 1, 8–9 (2011-2012).Google Scholar

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15 Mizik, Natalie, The Theory and Practice of Myopic Management, 47 J. Marketing Res. 594 (2010), stating that according to the results of her empirical studies, the stock premium earned by shareholders at the time of short-time fixed firm and/or high risk behaviour of executives and their firms is outweighed by their underperformance in the following four years.Google Scholar

16 See Gilson, Ronald & Black, Bernard, The Law And Finance Of Corporate Acquisitions 244 (1986), noting that stockholders have capped downside but unlimited upside, which makes them more risk-seeking than debtholders. See Frederick Tung, New Death of Contract: Creeping Corporate Fiduciary Duties for Creditors, 57 Emory L. J. 809, 824 (2007-2008), describing efforts to extend fiduciary duties to bond creditors “in the zone of insolvency” to reduce the impact of option theory. See Frederick Tung, Bonding Bankers: Notes Toward a Governance Approach to Risk Regulation, 4 Enter. Bus. L. J. 465 (2009).Google Scholar

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18 See Standard & Poor's, Global Credit Portal: Banks 48 (2011), stating that it has been empirically proven that a government, which is faced with a financial crisis, will often but not always, provide additional support to protect confidence in its economy, based on the assumption that the cost of this additional support will most probably be less damaging to the overall economy than allowing the whole banking system to fail.Google Scholar

19 The Interim Final Rule on TARP Standards for Compensation and Corporate Governance served as a model for the Dodd-Frank Act because it represents a general application of the principle underlying the Interim Final Rule on TARP Standards for Compensation and Corporate Governance that all financial firms should avoid excessive risks by i.a. tying pay to long-term performance,Google Scholar

20 See Thomas, Randall & Wells, Harwell, Executive Compensation in the Courts: Board Capture, Optimal Contracting, and Officers’ Fiduciary Duties, 95 Minn. L. Rev. 846 (2010-2011); Bradford, Steve & Skeel, David, supra note 11.Google Scholar

21 Incentive-Based Compensation Arrangements, 76 Fed. Reg. 21170 (proposed Apr. 14, 2011) (to be codified at 12 CFR Part 42).Google Scholar

22 Under the regulations, a plan may lead to excessive compensation depending on the following factors: An incentive-based compensation arrangement provides excessive compensation when amounts paid are unreasonable or disproportionate to the services performed by a covered person, taking into consideration: (i) The combined value of all cash and non-cash benefits provided to the covered person; (ii) The compensation history of the covered person and other individuals with comparable expertise at the covered financial institution; (iii) The financial condition of the covered financial institution; (iv) Comparable compensation practices at comparable covered financial institutions, based upon such factors as asset size, geographic location, and the complexity of the covered financial institution's operations and assets; (v) For postemployment benefits, the projected total cost and benefit to the covered financial institution; (vi) Any connection between the individual and any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the covered financial institution; and (vii) Any other factors the Commission determines to be relevant. Interestingly, during the financial crisis, one of the most striking revelations was that financial institutions were doing the same things, but very badly, and in the same way. So, to be able to justify a compensation plan on the basis that other similar institutions have similar plans seems to hardly be a way to reduce systemic risk or to police risky compensation schemes.Google Scholar

23 See Press Release, Sec. & Exch. Comm'n, Agencies Seek Comment on Proposed Rule on Incentive Compensation (30 Mar. 2011), available at: http://www.sec.gov/news/press/2011/2011-77.htm (last accessed: 27 June 2013).Google Scholar

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25 Cf. Bebchuk, Lucian & Spamann, Holger, supra note 2, at 281, 287.Google Scholar

26 Cf. Johnson, Kristin, supra note 2, at 55, 95; Cf. Guido Ferrarini & Maria Christina Ungureanu, Economics, Politics, and the International Principles for Sound Compensation Practices: An Analysis of Executive Pay at European Banks, 64 Vand. L. Rev. 429, 451–52 (2011).Google Scholar

27 Id. at 66–9.Google Scholar

28 Because of the increased use of derivatives in the 1990s, the SEC introduced regulations requiring firms to include disclosure of quantitative risk models in their financial statements; See 17 C.F.R § 210.4-08(n) (2009); See Emergency Economic Stabilization Act of 2008, Pub. L. No. 110–343, § 101 (a) (1), 122 Stat. 3765; See American Recovery and Reinvestment Act of 2009, Pub. L. No. 111–5, § 7001 (a) (2) (codified at 12 U.S.C. § 5221(a) (3) (2011).Google Scholar

29 See e.g., Henry, Hu, Misunderstood Derivatives: The Causes of Informational Failure and the Promise of Regulatory Incrementalism, 102 Yale L.J. 1457, 1463 (1993); James Barth et al., Reassessing the Rationale and Practice of Bank Regulation and Supervision after Basel II, in 5 Current Developments in Monetary and Financial Law 225, 227 (2008).Google Scholar

30 See e.g., Bebchuk, Lucian & Spamann, Holger, supra note 2, at 281.Google Scholar

31 Id. Google Scholar

32 Id. at 286.Google Scholar

33 Some may argue that pay regulation will drive talent away and that financial firms will lose valuable employees. This will be prevented, however, because regulation of pay in financial firms can focus on pay structures and won't limit compensation levels: See Lucian Bebchuk & Holger Spamann, supra note 2, at 287; See Compensation Structure & Systemic Risk: Hearing Before the H. Comm. on Fin. Servs., 111 th Cong. 6 (2009): Professor Bebchuk testified that at least for non-financial firms, “[t]he government should not seek to limit the substantive arrangements from which private decision makers may choose.”.Google Scholar

34 Cf. Buffington, Jack, The Death of Management: Restoring Value to the U.S. Economy 115–45 (2009).Google Scholar

35 See Okamoto, Karl, After the Bailout: Regulating Systemic Moral Hazard Essay, 57 UCLA L. Rev. 183, 204–09 (2009-2010), analyzing the skewed incentives of an asset manager who is rewarded for profits, but terminated for either no profits or losses; See Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report 419 (2011), available at: http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf (last accessed: 27 June 2013), where the dissenting members of Commission highlighted ten essential causes of the meltdown, including a “common shock” that caused unrelated financial institutions to fail because of “similar failed bets on housing” and a “risk of contagion” due to particular firms’ failures “triggering balance-sheet losses in its counterparties”.Google Scholar

36 See John Graham et al., Value Destruction and Financial Reporting Decisions, 62 Fin. Analysts J. 27, 27–31; Natalie Mizik, supra note 15, at 594, who, in their large surveys of several hundreds of executives and companies, found out that, in order to meet earnings expectations, executives and their firms were only focused on short-termism and seemed to be ready to sacrifice long-term sustainability; Lucian Bebchuk & Jesse Fried, Pay Without Performance: The Unfulfilled Promise Of Executive Compensation 80–95 (2004); Cf. Lucian Bebchuk & Jesse Fried, Paying for Long-Term Performance Symposium: Protection of Investors in the Wake of the 2008–2009 Financial Crisis, 158 U. Pa. L. Rev. 1915 (2009-2010).Google Scholar

37 See Johnson, Kristin, supra note 2, at 61.Google Scholar

38 Cf. Gualerzi, Davide, The Coming of Age of Information Technologies and the Path of Transformational Growth: A long run perspective on the late 2000s recession 69–70 (2010).Google Scholar

39 Cf. Christopher, Dow, Major Recessions: Britain and the World 1920–1995 9 (2000), showing that recession was driven not by exogenous shocks but by a downward shift in business and consumer confidence, in reaction to the previous speculative boom.Google Scholar

40 See e.g., Walker, David, Evolving Executive Equity Compensation and the Limits of Optimal Contracting, 64 Vand. L. Rev. 611, 633 (2011).Google Scholar

41 See Paul Caroll and Chunka Mui, Billiion Dollar Lessons 279–91 (2008); See James Hoopes, Corporate Dreams 35 (2011).Google Scholar

42 See Dallas, Lynne, supra note 5, at 321, explaining the causes of executives’ “greed and ambition” syndrome; see David Walker, supra note 40, 636, stressing that risk aversion “is the most frequently modelled individual-level characteristic affecting the optimal” design of individual pay packages.Google Scholar

43 See Lessons Learned from Enron's Collapse: Auditing the Accounting Industry: Hearing Before the Committee on Energy and Commerce, 107^th Cong. 96, 104 (2002), prepared statement of Baruch Lev, available at: http://republicans.energycommerce.house.gov/107/action/107-83.pdf (last accessed: 27 June 2013), stressing the importance of intangible assets, such as R&D. organizational designs and knowledge management systems for long-term firm success.Google Scholar

44 See Philippe Jorion, Value at Risk: The New Benchmark for Managing Financial Risk 62 (2001), explaining that “risk can be defined as the volatility of unexpected outcomes, generally the value of assets or liabilities of interest”.Google Scholar

45 Schwarcz, Steven, supra note 8, at 193, 205–207, arguing that regulation in this area is justified both on an efficiency basis and to meet public welfare goals.Google Scholar

46 SEC Shareholder Approval of Executive Compensation, 17 C.F.R. § 229, 240, 249, 6013 (2011).Google Scholar

47 Id. at 6014.Google Scholar

48 See Dallas, Lynne, supra note 5, at 353, rightly proposing that there should be a differentiation between transient institutional and long-term shareholders. Enhancing the voting power of long-term shareholders is the most effective way of blocking flawed incentive pay schemes. Activists and short-term institutional shareholders including banks, insurance companies, investment companies, pensions, hedge funds etc. usually treat firms as a short-term arbitrage opportunity to increase short-term gains; Cf. Bratton, William & Wachter, Michael, The Case Against Shareholder Empowerment, 158 U. Pa. L. Rev. 653, 654–660 (2009-2010); Mitchell, Lawrence, The Legitimate Rights of Public Shareholders, 66 Wash. & Lee L. Rev. 1635, 1640 (2009), advocating the elimination of shareholder rights in the case of short-termism; Cf. Emeka Duruigbo, Stimulating Long-Term Shareholding, 33 Cardozo L. Rev. 1733 (2011-2012), proposing several instruments to stimulate long-term shareholding.Google Scholar

49 The United Kingdom introduced a nonbinding say-on-pay rule in 2002: See Andrew Lund, Say on Pay's Bundling Problems, 99 Ky. L. J. 119 (2010-2011), emphasizing that “[t]he experience in the U.K. provides little evidence that say on pay disciplines firms; Proposed regulation to give shareholders ex ante consideration of these plans seems of marginal value given that shares of a publicly-held company change hands many times over the course of a year. Given this fact, new shareholders are constantly making an ex ante binding decision about whether the disclosed compensation plan is acceptable to them”; See Leo Strine Jr., One Fundamental Corporate Governance Question we Face: Can Corporations be Managed for the Long Term Unless their Powerful Electorates also Act and Think Long Term Essay, 66 Bus. Law. 1, 11 (2010-2011), citing data that suggest that the annual turnover across all U.S. stock exchanges in 2008 was over 300%.Google Scholar

50 See Johnson, Kristin, supra note 2, at 98.Google Scholar

51 See Robert Scully Jr., Executive Compensation, the Business Judgment Rule, and the Dodd-Frank Act: Back to the Future for Private Litigation?, 58 Fed. Law. 38 (2011).Google Scholar

52 See Bruner, Christopher, Corporate Governance Reform in a Time of Crisis, 36 J. Corp. L. 309, 332–34 (2010-2011); Bainbridge, Stephen, Is Say on Pay Justified Corporate Governance, 32 Regulation 42, 157 (2009-2010); David Skeel Jr., Inside-Out Corporate Governance, 37 J. Corp. L. 147, 156–58 (2011-2012); Olson, John, supra note 4, at 289–99.Google Scholar

53 See Siebecker, Michael, New Discourse Theory of the Firm After Citizens United, A, 79 Geo. Wash. L. Rev. 161, 213 (2010-2011).Google Scholar

54 See Bebchuk, Lucian, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833, 857, 865 (2004-2005).Google Scholar

55 See Bebchuk, Lucian, Letting Shareholders Set the Rules, 119 Harv. L. Rev. 1784, 1794, 1799, 1803 (2005-2006).Google Scholar

56 Cf. the solution to this problem put forward by Lawrence Cunningham, New Legal Theory to Test Executive Pay: Contractual Unconscionability, 96 Iowa L. Rev. 1177 (2010-2011); Robert Scully Jr., supra note 51, at 39; Cf. Walt Disney Co. Derivative Litig., 906 A.2d 27 (Del. 2006) a case, in which the Board of Directors had hired a certain executive and had terminated her contract without cause sixteen months after she had started working for the company. Most importantly, the contract contained a termination provision according to which the Board of Directors had to pay and indeed paid this person $130 million compensation. The Supreme Court of Delaware nevertheless didn't find that the Board of Directors had breached any fiduciary duties.Google Scholar

57 See “Listing Standards for Compensation Committees” – Release Nos. 33–9330; 34–67220; File No. S7-13-11, available at: http://www.sec.gov/rules/final/2012/33-9330.pdf (last accessed: 5 July 2013).Google Scholar

58 According to the SEC relevant factors, include, but not limited to, the source of compensation of a director, including any consulting, advisory or other compensatory fee paid by the issuer to such director, and whether the director is affiliated with the issuer, a subsidiary of the issuer, or an affiliate of a subsidiary of the issuer.Google Scholar

59 See Bebchuk, Lucian, The Myth of the Shareholder Franchise, 93 Va. L. Rev. 675 (2007); See Lucian Bebchuk, Letting Shareholders Set the Rules, 119 Harv.L. Rev. 1784 (2006); See Lucian Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2005); Cf. Kelli Alces, Beyond the Board of Directors, 46 Wake Forest L. Rev. 783 (2011), who supports the relatively radical view to replace the board of directors because of these and other deficiencies.Google Scholar

60 In re Oracle Corp Derivative Litigation, 824 A.2d 917, 917 (Del. Ch. 2003), the Court concluded that close personal relationships were a factor in deciding that a special litigation committee was not independent. The court noted: “Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement. … We may be thankful that an array of other motivations exist that influence human behavior; not all are any better than greed or avarice, think of envy, to name just one. But also think of motives like love, friendship, and collegiality, think of those among us who direct their behavior as best they can on a guiding creed or set of moral values.”Google Scholar

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62 See Bebchuk, Lucian & Fried, Jesse, Pay without Performance: Overview of the Issues, 30 J. Corp. L. 647, at 657–8 (2005).Google Scholar

63 In Beam v. Stewart, 845 A.2d 1040, 1040 (Del. Super. Ct. 2004), shareholders alleged that because of structural biases, which restricted the boards’ independence, the board would block shareholders from moving a derivative case forward prior to the formation of a special litigation committee, which would be established to assess the merits of that claim. Structural bias was the result of members of the boards’ personal and/or professional relationships with the chairman and CEO who was involved in an insider trading scandal. The court made it considerably difficult for shareholders to prove that the board was not independent and raised the requisite standard of proof. The court was unwilling to find that personal and business relationships could alone amount to such a grave structural bias, which would prevent directors from acting in an independent manner. A demonstration that the board was not independent would entail a pleading of particularized facts that create a reasonable doubt sufficient to rebut the presumption that the directors were independent of the CEO. Arguments of structural bias not based on concrete incidents have no sufficient evidentiary basis. On the contrary, when directors have the burden of demonstrating independence as was the case in Oracle (supra note 61) they must demonstrate impartiality and the court can freely consider the possibility of structural biases in assessing independence. This creates for shareholders and potentially also for an Agency a procedural/litigation disadvantage.Google Scholar

64 Cf. Yablon, Charles, Lucian Bebchuk & Jesse Fried, Pay without Performance: The Unfulfilled Promise of Executive Compensation, 4 N.Y.U.J.L. & Bus. 96, 97, 107, 108 (2007-2008).Google Scholar

65 See Simmons, Omari Scott, Taking the Blue Pill: The Imponderable Impact of Executive Compensation Reform, 62 S. M. U. L. Rev. 299 (2009), describing the optimal contracting theory and two countervailing theories: market forces theory, in which the market for CEO pay is weak/imperfect; and managerial power theory, wherein the board is captured; Cf. the very insightful analysis of Christine Jolls, Cass Sunstein & Richard Thaler, Behavioral Approach to Law and Economics, 50 Stan. L. Rev. 1471 (1997-1998).Google Scholar

66 See Johnson, Kristin, supra note 2, at 98.Google Scholar

67 For similar suggestions concerning the regulation of banker's pay, see Lucian Bebchuk & Holder Spamann, supra note 2, at 283.Google Scholar

68 Cf. Lucian Bebchuk, Alma Cohen & Spamann, Holger, The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008, 27 Yale J. on Reg. 257 (2010); Schwarcz, Steven, supra note 8, at 205–07, arguing that regulation in this area is justified both on an efficiency basis and for public welfare reasons; Cf. Robert Scully Jr., supra note 51, at 38, 40, stating that ‘this massive bill newly federalizes a great deal of corporate and securities law, but at the same time it largely preserves the century-old practice of adjudicating claims of directors’ liability for approving payment of excessive executive compensation under the business judgment rule'; Cf. Jose Gabilondo, Dodd-Frank, Liability Structure, and Financial Instability Cycles: Neither a (Ponzi) Borrower nor a Lender be the Sustainable Corporation, 46 Wake Forest L. Rev. 469 (2011), putting forward arguments that the existing legal framework and the business judgment rule suffice and that no superior public interest dictates a more intense regulatory intervention.Google Scholar

69 See Bebchuk, Lucian & Spamann, Holder, supra note 2, at 287; Compensation Structure & Systemic Risk: Hearing Before the H. Comm. on Fin. Servs., 111 th Cong. 6 (2009) (statement of Lucian Bebchuk).Google Scholar

70 Cf. in this respect the concession v. nexus-of-contracts theories of the corporation: See Liam Seamus O'Melinn, Neither Contract nor Concession: The Public Personality of the Corporation, 74 Geo. Wash. L. Rev. 201 (2005-2006); Padfield, Stefan, Dodd-Frank Corporation: More than a Nexus-of-Contracts, 114 W. Va. L. Rev. 209, 211 (2011-2012).Google Scholar

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72 See Walker, David, supra note 40, stressing that “the optimal convexity of mix of stock and options in executive pay packages should be a function of market, firm and individual characteristics.”.Google Scholar

73 See Dallas, Lynne, supra note 5, at 293, who uses the term short-termism instead of excessive risk-taking to signify the general thinking and strategy of executives.Google Scholar

74 Cf. Minsky, Hyman P., Can “It” Happen Again? Essays On Instability And Finance, at 117, 118–24 (1982); See for business cycles in general: Cf. Paul Krugman & Robin Wells, Essentials of Economics, 301–304 (2010); For empirical confirmations of Minsky's theory, see Virginia Postrel, Macroegonomics, http://www.theatlantic.com/magazine/archive/2009/04/macroegonomics/7319/ (last accessed: 27 June 2013); Weisenthal, Joe, 15 Huge Ideas That Flopped This Decade, http://www.businessinsider.com/15-huge-ideas-that-flopped-this-decade-2009-12?op=1 (last accessed: 27 June 2013).Google Scholar

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78 Disclosure, transparency and accountability are the main principles that foster shareholder democracy as it is envisaged by Lucian Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2004-2005).Google Scholar

79 Cf. Galle, Joanna Gerdina Carolina Maria, Consensus on the comply or explain principle within the EU corporate governance framework: legal and empirical research (2012), explaining why and how the comply or explain principle became the main internationally sanctioned method of indirect corporate governance regulation.Google Scholar

80 See SEC, Executive Compensation Disclosure, Securities Act Release No. 33–8765 (Dec. 22, 2006); SEC Executive Compensation Disclosure, Exchange Act Release No. 34–55009 (Dec. 29, 2006).Google Scholar

81 See e.g. Form S-1, Registration Statement Under the Securities Act of 1933, requiring under Item 11, Information with Respect to the Registrant, “(k) Information required by Item 402 of Regulation S-K, executive compensation”.Google Scholar

82 See Form 10-K, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (requiring under Item 11, Executive Compensation, “the information required by Item 402 of Regulation S-K”). Form 8-K, which publicly-held firms are required to file upon the happening of certain events, requires similar compensation information to be disclosed upon either the hiring of a new executive officer or an amendment to a compensation plan. See Form 8-K, Current Report under Securities Exchange Act of 1934, Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.Google Scholar

83 See generally Proxy Disclosure Enhancements, Exchange Act Release Nos. 33–9089; 34–62275 (Dec. 16, 2009), available at: http://www.sec.gov/rules/final2009/33-9089.pdf (last accessed: 27 June 2013) at 5, 8, 9, 15–16.Google Scholar

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85 It should be explained in detail how a specific incentive plan design minimizes the pressure and influence of transient institutional shareholders who focus almost exclusively on short-term results and earnings; for various corporate governance weaknesses and firm under-performance issues associated with the negative role of transient institutional shareholder: See Lynne Dallas, supra note 5, at 304–06; Id. at 317–8, stressing the importance of the cooperation between management, internal controls and risk management for a firms long-term success.Google Scholar

86 Cf. Ira Kay & Steve van Putten, Myths and Realities of Executive Pay 96–98 (2007); Cf. Elias George, Using Game Theory and Contractarianism to Reform Corporate Governance: Why Shareholders Should Seek Disincentive Schemes in Executive Compensation Plans, 42 Golden Gate U. L. Rev. 349, 384–85 (2011-2012).Google Scholar

87 See Bebchuk, Lucian & Spamann, Holger, supra note 2, at 282.Google Scholar

88 Cf Johnson, Kristin, supra note 2, at 55, 57; for such techniques see Michel Crouhy, Dan Galai & Robert Mark, Risk Management, 543 (2001), analyzing how these techniques function; see Rene Stulz, Risk Management Failures: What Are They and When Do They Happen?, Harv. Bus. Rev. 59 (2009), exposing the limitations of such techniques.Google Scholar

89 See Mizik, Natalie, supra note 15, at 594, 599 (2010), who in her 6642 companies’ study discovered that stock markets did not value firms with excessive focus on short-term performance less than firms that e.g. increased support for R&D while yielding equally good financial results with their short-term fixed rivals.Google Scholar

90 Cf. Bank, Steven, Devaluing Reform: The Derivatives Market and Executive Compensation, 7 DePaul Bus. L. J. 301, 309–11 (1995), examining traditional critiques of stock-based compensation, including the assumption that stock price is an adequate proxy for executive performance; Lynne Dallas, supra note 5, at 271, 298, attributing short-termism to the phenomenon of herding behavior; Toni Turner, Short-Term Trading In The New Stock Market, 99 (2005), explaining the differences between fundamental analysis and technical analysis, which is suitable for short-term earning strategies.Google Scholar

91 See Dallas, Lynne, supra note 5, at 328.Google Scholar

92 See Bebchuk, & Fried, , supra note 63, at 665, reporting that empirical studies suggest that executives are able to use inside information to make decisions on when and whether to hedge stock-based compensation.Google Scholar

93 Cf. Ira, Kay & Putten, Steve van, supra note 87, at 62.Google Scholar

94 See e.g., David Walker, Evolving Executive Equity Compensation and the Limits of Optimal Contracting, 64 Vand. L. Rev. 611, 621 (2011), stressing that the optimal pay arrangement would balance incentive generation with risk-bearing costs.Google Scholar

95 See Sepe, Simone, Making Sense of Executive Compensation, 36 Del. J. Corp. L. 189, 195 (2011), suggesting that in firms with high levels of leverage “[t]he fixed-equity ratio of executive pay should be tied to the debt-equity ratio of the firm's capital structure, in order to exploit the property of fixed-compensation of countering manager's excessive risk incentives. In contrast, equity-based compensation should be preferred in low-leveraged firms, where overinvestment concerns are less severe given the smaller debt cushion. Accordingly, in these corporations the equity-based portion of executive pay should exceed the fixed-pay portion.”Google Scholar

96 See e.g., Posner, Richard, Are American CEOs Overpaid, and, if so, What if Anything Should Be Done About It?, 58 Duke L.J. 1013, 1045–46 (2009), suggesting that restricted stock should constitute a minimum fraction of CEO pay.Google Scholar

97 See Fried, Jesse, Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay, 89 Tex. L. Rev. 1113, 1114 (2010-2011).Google Scholar

98 See Walker, David, supra note 40, at 648- 660, providing statistical data and analysis for hundreds of public companies.Google Scholar

99 Cf. Allen, Roy, Financial Crises and Recession in the Global Economy, 80 (2009); Dallas, Lynne, supra note 5, at 270 and 306–07.Google Scholar

100 See Bebchuk, Lucian & Fried, Jesse, supra note 36, ch. 14; Cf. Brian Hall, The Pay to Performance Incentives of Executives Stock Options (NBER Working Paper Series, Cambridge, MA 1998) 1, noting that in 1980 the average stock option grant represented less than 20 percent of direct pay and the median stock option grant was zero.Google Scholar

101 Bhagat, Sanjai & Romano, Roberta, Reforming Executive Compensation: Focusing and Committing to the Long-Term, 26 Yale J. On Reg. 359, at 363, 465–66 (2009), stating that “[m]anagers with longer horizons will, we think, be less likely to engage in imprudent business or financial strategies or short-term earnings manipulation when the ability to exit before the problem comes to light is greatly diminished”; Lucian Bebchuk & Jesse Fried, Paying For Long-Term Performance, 158 U. Pa. L. Rev. 1915, 1919 (2009-2010); Ira, Kay & Putten, Steven van, supra note 87, at 5, 169, 174, 175.Google Scholar

102 Cf. Bebchuk, Lucian & Fried, Jesse, id., at 1921; Lucian Bebchuk & Holger Spamann, supra note 2, at 254.Google Scholar

103 Cf. Johnson, Kristin, supra note 2, at 55, 66; Comm. Of Sponsoring Orgs. Of The Treadway Comm'n, Enterprise Risk Management-Integrated Framework: Executive Summary (2004), available at: http://www.coso.org/Publications/ERM/COSOERMExecutiveSummary.pdf (last accessed: 27 June 2013).Google Scholar

104 European Commission Recommendation 2009/385/EC of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies O.J. (L 120).Google Scholar

105 See Walker, David, supra note 40, at 653, noting that such compensation schemes as “stock” “compensation which takes the form of conventional time-vested restricted stock, performance-vested restricted stock, which is actually time and performance vested, and performance shares, which are contractual arrangements that are equivalent economically to performance-vested restricted stock” are available to every public company and have been employed to various degrees by the boards of public companies.Google Scholar

106 Cf. Walker, David, supra note 40, at 631, who refers to Moody's Corp. compensation practices as a characteristic example of performance-vested restricted stock scheme “[t]hat vests relatively slowly, or relatively quickly, depending on growth in the company's annual operating income”.Google Scholar

107 See Bebchuk, Lucian & Fried, Jesse, supra note 102, at 1920, noting that it is essential for avoiding both spring-loading and stock-price manipulation around equity grants that at the time of vesting “the timing of equity grants should not be discretionary, and equity awards should be made only on certain prespecified dates. In addition, the terms and value of equity grants should not be linked to the grant-date stock price, which can easily be manipulated”.Google Scholar

108 See Robert Scully Jr., supra note 51, at 40; Alfred Rappaport, Economics of Short-Term Performance Obsession, 61 Fin. Analyst J. 65, 73 (2005), discussing how “[r]elatively short vesting periods coupled with the belief that earnings fuel stock prices encourage executives to manage earnings, exercise their options early, and cash out shares opportunistically”.Google Scholar

109 See Bebchuk, Lucian & Fried, Jesse, supra note 102, at 1923, noting that usually, once options vest, they typically remain exercisable for ten years from the grant date. “[H]owever, standard arrangements allow executives to exercise the options and sell the underlying shares immediately upon the vesting of their options”.Google Scholar

110 See Bebchuk, Lucian & Fried, Jesse, supra note 102, at 1920, noting that at the time of unwinding it is essential “to reduce the executives’ ability and incentive to time dispositions based on inside information, as well as reduce executives’ ability and incentive to manipulate the stock price around the time of disposition. Executives could be required to announce their intentions to unwind equity in advance. Firms could also use ‘hands-off’ arrangements under which an executive's vested equity incentives are automatically cashed out according to a schedule specified when the equity incentives are initially granted”.Google Scholar

111 See Bebchuk, Lucian & Freed, Jesse, supra note 102, at 1928–29.Google Scholar

112 Id. at 1933.Google Scholar

113 Cf. Carpenter, Mason, The Price of Change: The Role of CEO Compensation in Strategic Variation and Deviation from Industry Strategy Norms, 26 J. o. M. 1179, 1184, 1185, 1194, 1195 (2000), arguing that increases in long-term pay and long-term pay structure promotes strategic change, which fosters competitive advantage and secures the viability of a company.Google Scholar

114 Cf. Kowalik, Michael, Countercyclical Capital Regulation, 2 Fed. Res. Kan. City Econ. Rev. 63–64 (2011).Google Scholar