Outrage constraint
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In corporate governance, the outrage constraint is an upper limit on executive pay.[1][2][3][4]
- ↑ Krugman, Paul (2002-08-23). "The Outrage Constraint". The New York Times. Retrieved 22 October 2011.
In practice, modern C.E.O.'s set their own compensation, limited only by the outrage constraint -- outrage not on the part of the board, whose members depend on the C.E.O.'s good will for many of their perks, but on the part of outside groups that can make trouble.
- ↑ Lucian Arye Bebchuk; Jesse M. Fried (1 September 2006) [Previous edition 2004]. Pay Without Performance: The Unfulfilled Promise of Executive Compensation. Harvard University Press. p. 65. ISBN 978-0-674-02228-7. Retrieved 25 October 2011.
When the potential outrage costs are large enough, they will deter the adoption of arrangements that managers would otherwise favor. We shall refer to arrangements that are deterred in this way as ones that violate the 'outrage constraint.'
- ↑ Sheehan, Kym (2007-03-18). "Is the Outrage Constraint an Effective Constraint on Executive Remuneration? Evidence from the UK and Preliminary Results from Australia". Social Science Research Network. SSRN 974965.
The managerial power thesis of Professors Lucian Bebchuk and Jesse Fried argues that outrage is perhaps the only effective constraint on executive remuneration, where the board of directors is effectively dominated by a sufficiently powerful CEO or senior management group.
{{cite journal}}: Cite journal requires|journal=(help) - ↑ Gordon, R.; I. Dew-Becker (7 September 2007). Unresolved Issues in the Rise of American Inequality (PDF). Presented at Brookings Panel on Economic Activity, Washington D.C. Department of Economics, Northwestern University. Archived from the original (PDF) on 15 August 2011. Retrieved 25 October 2011.
Bebchuk and Fried (2004) provide a substantial amount of evidence that the principal‐agent setting cannot explain the salient facts about CEO pay. They propose an alternative model in which CEOs have control over boards of directors and are mainly restricted by an "outrage constraint" where shareholders retaliate if they perceive executive compensation to be excessive.
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