California Labor and Employment Defense Blog

Mandated Executive Compensation Limits Appear Innevitable

In case you hadn't heard, the bipartisan economic bailout bill failed to pass the House today.  However, an article in is already opining that one politically popular aspect of the bill is destined to survive in any future bailout proposal -- namely, limits on executive compensation.

Under the failed bill, a firm would be prohibited from offering multimillion-dollar golden-parachute severance packages to newly hired executives in its top five positions if it sold more than $300 million in securities to the government in a public auction. The company would not be allowed tax deductions for executive compensation over $500,000 and would be penalized for giving golden parachutes to fired executives.

My understanding is that the intended enforcement mechanism would consist mainly of unfavorable tax treatment for executive compensation over the prescribed limits.  I have to wonder, however, if the ultimate legislation might also be read to create a private right of action -- such as a shareholder derivative suit -- to recover "excess" compensation.  If so, Congress could be getting ready to spawn a whole new field of employment litigation.

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