Page 151 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 4. The Stakeholders 137

court decision or affirm it, either by refusing to hear the case or, upon hearing the case, by
agreeing with the lower court’s decision.
The Rulemakers and Executive Pay. During the twentieth century, actions by rulemakers
regarding executive pay can be divided into four distinct periods. They are shown in Table 4-16.

Period A 1900–1912 Virtually regulation free.They truly were the
“good old days.”
Widely fluctuating maximum personal tax rates
Period B 1913–1933 (after their 1913 introduction) made tax
effectiveness very important in plan design.
Securities Exchange Commission requirements on
company stock were added to the tax issues and
Period C 1934–1972 were coupled with on-again/off-again pay controls,
creating a three-legged stool with tax policy and
SEC requirements.
The emergence of accounting rules through APB
and FASB on stock plans is a dominant feature Period
Period D 1972–Present overshadowing the IRS and SEC, bringing an Orwellian
Animal Farm definition to the importance of the three.

Table 4-16. Key regulatory periods

Pay Controls. On several occasions, Congress has taken action limiting pay actions. Shown
in Table 4-17, the 1942, 1950, and 1970 actions were in response to cost-push inflation
concerns. Respectively, they were concurrent with World War II, the Korean conflict, and

Act What It Did
Stabilization Act Froze wages and salaries but permitted limited benefit
of 1942 increases
Defense Production Curtailed wages and salaries but permitted limited
Act of 1950 benefit increases
Economic Stabili- Permitted President Nixon to:
zation Act of 1970 • freeze pay and benefits for 90 days (Phase I)
• establish pay board limiting pay to a 5.5% increase and
benefits to a 0.7% increase (Phase II, removed in 1974)
• set a period of voluntary compliance (Phase III,
removed in 1974)
Permitted President Carter to set a 7% ceiling on salary
increases in 1978 (lifted 1980)
Omnibus Budget Introduced Section 162(m) limiting pay deductions to
Reconciliation $1 for each proxy named executive unless linked to
Act of 1993 performance
Table 4-17. Federal wage controls