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93 Calif. L. Rev. 1557 (2005)
The Academic Tournament over Executive Compensation

handle is hein.journals/calr93 and id is 1569 raw text is: Book Review The Academic Tournament over Executive Compensation PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION By Lucian Bebchukt and Jesse Friedtt Cambridge: Harvard University Press, 2004, Pp. xii, 278. $24.95 cloth. Reviewed by William W. Brattonttt Executive pay brings out the worst in the corporate-governance sys- tem. No economic theory tells us the terms of an optimal pay arrange- ment that penalizes failure while rewarding effort and merit in just the right increments. Absent such a first-best template, we must rely on contracting practice and experience to teach us on a trial-and-error basis. But contract- ing practice provides an inadequate economic laboratory because firms herd to a small set of arrangements.1 Critics charge that the practice also reflects a dysfunctional agency relationship. They complain that giveaways abound, despite an across-the-board shift towards incentive pay arrange- ments, despite the transparency mandates of a thick stack of regulations, despite the shaming strategies of institutional investors, and despite fre- quent exposes of excess in the vigilant business press. And even as man- agement has its defenders, none of them claim it to be underpaid. Many find this unsatisfactory situation puzzling. Why should a boon- doggle persist in the teeth of the triumph of shareholder capitalism over the moribund managerialist model of the postwar period? Why, despite market controls, process protections, reporting requirements, and press reports, should compensation arrangements so clearly fail to measure up under the standard of arm's-length contracting? In Pay Without Performance: The Unfulfilled Promise of Executive Compensation, Lucian Bebchuk and Jesse Copyright p 2005 California Law Review, Inc. California Law Review, Inc. (CLR) is a California nonprofit corporation. CLR and the authors are solely responsible for the content of their publications. t Friedman Professor of Law, Economics & Financc, Harvard Law School. tt Professor of Law, School of Law, University of California, Berkeley (Boalt Hall). ttt Professor of Law, Georgetown University Law Center. I. See Iman Anabtawi, Overlooked Alternatives in the Pay Without Performance Debate 39-43 (Jan. 2005) (unpublished manuscript, on file with author) (suggesting that path dependence limits alternative pay arrangements). 1557

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