4 N.Y.U. J.L. & Bus. 89 (2007-2008)
Is the Market for CEOs Rational

handle is hein.journals/nyujolbu4 and id is 91 raw text is: Review Essay

IS THE MARKET FOR CEOS RATIONAL?
CHARLES M. YABLON*
LUCIAN BEBCHUK & JESSE FRIED, PAY WITHOUT PER-
FORMANCE: THE UNFULFILLED PROMISE OF EXECU-
TIVE COMPENSATION (Harvard 2004)
INTRODUCTION
Are the multimillion dollar CEO compensation packages
that have become such a notable part of contemporary Ameri-
can business culture the product of rational arms-length bar-
gaining in a relatively efficient market, or are they exorbitant
rents extracted by CEOs with largely unfettered power over
corporate boards? This question, once relegated to the more
obscure corners of business and legal corporate scholarship,1
has now become a central feature of the debates over corpo-
rate governance generated by recent corporate scandals. A
few years ago, the fact that corporate CEOs were being paid at
levels many hundreds of times greater than that of the average
employee in their companies might have been condemned as
unseemly, perhaps even potentially socially disruptive, and cer-
tainly not conducive to good labor relations. Yet these con-
* Professor of Law, Benjamin N. Cardozo School of Law. I want to
thank Lucian Bebchuk, Jennifer Hill and Zohar Goshen for their thoughtful
comments on earlier versions of this essay, as well as participants at the Max
Planck Institute in Bonn, Germany, the Rutgers University Business School,
and the Australian Law Teachers Association in Sydney, Australia, where ear-
lier versions of this essay were presented. Jacob Shapira and Steven Cohen,
Executive Editors at the NYUJournal of Law & Business, also provided valua-
ble assistance. I also want to acknowledge the support of the Samuel and
Ronnie Heyman Center for Corporate Governance at Cardozo Law School.
1. Nonetheless, the question is one that has been around for a rather
long time. See George T. Washington, The Corporate Executive's Living Wage,
54 H~Av. L. REv. 733 (1941) (arguing that some chief executives might be
worth even as much as one million dollars, while also cautioning about the
need for courts to guard against fraud and overreaching). For a recent his-
tory of attempts to regulate executive compensation, SeeJerry W. Markham,
Regulating Excessive Executive Compensation - Why Bother?, 2 J. Bus. & TECH L.
277 (2007).
89
Imaged with the Permission of N.Y.U. Journal of Law and Business

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