Compensation Caywood, Steven C. (2010). Wasting the Article Review

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Compensation

Caywood, Steven C. (2010). Wasting the Corporate Waste Doctrine: How the Doctrine Can

Provide a Viable Solution in Controlling Excessive Executive Compensation. Michigan Law Review, 109(1), 111-136.

Major Thesis: This article reviews and seeks a solution for the controversial issue of corporate executives receiving enormous compensation. The article points out that public outcry against grossly, outrageously inflated bonuses and other compensations for executives has rarely done any good, but the group that suffers the most when executives receive such huge compensation are the shareholders. Meantime this paper suggests that the "corporate waste doctrine" is one way to limit "excessive executive compensation"; if the corporate waste doctrine were enforced legislatively, the author explains, and executives continue to be paid outlandishly huge bonuses, the stakeholders would have a legal recourse in response.

Clearly it is unfair when an executive -- specifically a CEO -- receives "…roughly 400 times that of an average worker in his or her respective industry," Caywood explains on page 113. In fact, receiving four hundred times what an average worker in the company receives is "a disparity twenty times greater than in 1965," Caywood asserts. In other words, the gaps between haves and have-nots continues to escalate, with those on the lower rungs of the ladder left in the dust while executives profit through shameful sums of money lavished on them. There are reform ideas in the works, including one by Congressman Barney Frank, that would be a "say-on-pay" law, giving the shareholders the right to vote on whether or not to grant big compensation packages to high-placed executives (Caywood, 114). Caywood notes that the "say-on-pay" law would not be binding, but rather "advisory" on the board of directors (114).

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Utility: This article is very useful for: a) anyone pursuing a degree in business or economics; b) stakeholders / stockholders in a corporation whether or not they are impacted by inordinately large bonuses to executives; having this knowledge is future ammunition in case there are compensation controversies; c) ordinary citizens whose jobs and mortgages are on shaky ground, and who see executives receiving multi-million dollar bonuses when the economy is a recessionary period and ordinary workers being laid off; and d) voters that take more than a cursory look at how candidates for public office approach the economic issues at hand; e.g., do those candidates espouse citizen-friendly views vis-a-vis reining in outrageous bonuses to Wall Street executives and others?

The article is also useful for the basic facts it presents about the corporate waste doctrine, a doctrine that not many people are familiar with. The doctrine is already in place, it is not part of a political reform package. The corporate waste doctrine is a "relatively simple" process; it allows a shareholder (or a group of shareholders) to make a claim against the company's board of directors when they have evidence that the board is "wasting company assets" (Caywood, 115). This "waste" can include "any distribution of company assets" albeit in most instances the claims are made against executive compensation, Caywood continues….....

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