Executive pay limits unwise, Yale expert argues

New rules aimed at monitoring and limiting executive pay within the US private business sector are ultimately self-defeating, it has been claimed.

With the US Treasury and Federal Reserve having announced new regulations aimed at addressing excessive executive pay on the back of recent public and political unrest, Yale law professor Jonathan Macey has argued that it is in the best interests of the economy to ensure that business leaders are well-rewarded for their work.

Furthermore, all the moves made to curb high salaries since the early 1990s, including rules concerning greater disclosure of individuals' pay, have in fact backfired and actually encouraged shareholders and board rooms to push up the pay levels of their highest flyers.

"No self-respecting board of directors is willing to admit that their company's CEO is below average," Professor Macey explained in the Wall Street Journal.

"So anytime the new disclosures indicate that an executive's pay is below average in any way, a pay increase is ordered."

In addition, he also argued that government regulation of executive pay has actively encouraged risk-taking behaviour at the top of businesses over recent years and boosted share price volatility levels, while it may also have impacted upon executive recruitment.

Just recently, the US government warned those companies which have benefited from taxpayer bailouts to slash bonuses for their top executives.