Comparing CEO Employment Contract Provisions

by R. Christopher Small for The Harvard Law School Forum, November 17th, 2010.

In our paper, Comparing CEO Employment Contract Provisions: Differences between Australia and the U.S., forthcoming in the Vanderbilt Law Review, we compare and contrast CEO employment contracts across two very different common law countries.

In the wake of the global financial crisis, executive compensation is front page news, with soaring rhetoric about excessive pay to ungrateful bank employees and personal attacks on CEOs and other executives. Frequently missing from the discussion, however, are basic facts surrounding the terms and conditions of the executives’ relationships with their firms. While several recent studies in the United States have begun to fill in some of the details surrounding American executive employment contracts, or the lack thereof, none have fully captured the U.S. experience, particularly from a legal perspective. Likewise, none of these studies even touch on Australian CEOs’ contractual employment relationships.

Our empirical study is designed to fill this gap. Our study also provides an additional perspective on the optimal contracting and managerial power models of executive pay in U.S. academic literature. Even if one accepts that a particular model has greater explanatory power in the U.S. context, this will not necessarily be the case in another jurisdiction, such as Australia. The United States and Australia, while enjoying many comparable regulatory features, display interesting differences in terms of capital market and regulatory structures. For example, capital markets in Australia differ markedly from the classic U.S. dispersed model of share ownership. (continue reading… )

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