Solutions to market failures usually involve government action. But on the issue of CEO earnings, investors are taking the tiger by its tail.
The two standard academic approaches to executive pay are optimal contracting theory, which has it roots in Jensen and Meckling's 1976 paper on managerial behaviour and agency costs, and the managerial power hypothesis advanced by Bebchuk and Fried in 2002 in their book Pay Without Performance.
Both approaches appear to be flawed. A review of US executive compensation data covering the period 1936 to 2005 by Frydman and Saks concluded that neither agency theory nor the managerial power hypothesis was fully consistent with the available evidence.
I favour a third approach, which treats the high pay of CEOs as the result of a market failu
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Seven hundred companies have submitted Modern Slavery Act statements, but few have met all the core elements of the law. Resources, a lack of knowledge and a need for more guidance have all contributed to a slow start.