Wasting the Corporate Waste Doctrine: How the Doctrine Can Provide a Viable Solution in Controlling Excessive Executive Compensation

Authors

Steven Clayton Caywood, University of Michigan Law School

Abstract

In the midst of the global recession of the late 2000s, there was an outcry against corporate executives and what the public deemed to be their excessive compensation. Although this anger is still featured in today's headlines, it is nothing new. In fact, excessive executive compensation complaints arose when the very concept of a corporation was still new. Most of the complaints that the public has leveled have had little effect on boards of directors' decisions. Occasionally, however the outcry is so great that the public compels a company's leadership to take action. This happened early in 2009 when American International Group ("AIG") stated that it was paying its top executives $165 million in bonuses. Within days, AIG, a company most Americans had not heard of was at the center of the excessive compensation debate. Under enormous political and public pressure, fifteen of the top twenty AIG executives agreed to give back their bonuses. This compromise is not typical, however; for every AIG-type controversy, many other payment plans some consider excessive are never publicly discussed. Both private and public proposals are currently under consideration that will limit excessive executive compensation in one way or another This Note contends that the already existing corporate waste doctrine can serve as a preferable alternative to legislative or executive actions. While the corporate waste doctrine is rarely used by plaintiffs, it could be effectively enforced by using a legislative tool, the say-on-pay provision, as a gatekeeper for the courts. This judicial solution using a legislative act would allow those who are actually affected by the excessive compensation-the shareholders- to pursue effective legal action against the corporation. The corporate waste doctrine would be enforced more narrowly than a statutory scheme, avoiding the possible unintended consequences of a broadly applicable legislative or regulatory action.

Recommended Citation

Steven C. Caywood, Wasting the Corporate Waste Doctrine: How the Doctrine Can Provide a Viable Solution in Controlling Excessive Executive Compensation, 109 Mich. L. Rev. 111 (2010).
Available at: https://repository.law.umich.edu/mlr/vol109/iss1/3