Smith School's Finance Chair Helps Stir Debate On Executive Compensation

Lemma Senbet, Holder of the William E. Mayer Chair in Finance at the Robert H. Smith School of Business, is among more than 30 members of the influential Financial Economists Roundtable (FER) signing on to a position paper addressing executive compensation issues. The statement, released November 24, calls for the repeal of a federal tax law that limits business tax breaks for compensation over $1 million. Senbet and other FER members argue that the law encourages the use of stock options, which do not fall under the cap.

Senbet is quoted in an article in The Wall Street Journal, which says the statement "seems sure to stir debate." The group's proposals "will potentially mitigate the factors that led to the corporate scandals," Senbet told the Journal.

In July, Senbet led FER's discussion on executive compensation issues, and then later he helped draft the final statement. In addition to the tax law repeal, FER calls for further disclosure of material changes in compensation, requiring a compensation expert on corporate boards, and the expensing of stock options.

FER is a group of senior financial economists, who have made significant contributions to the finance literature and seek to apply their knowledge to current policy debates. Its major objective is to create a forum for intellectual interaction that promotes in-depth analyses of current policy issues in order to raise the level of public and private policy debate and improve the quality of policy decision. The following statement on "The Controversy Over Executive Compensation" is the result of a discussion at FER's annual meeting on July 13-14, 2003.

Related articles:

The Washington Times, Nov. 24, 2003
"Economists want fed exec pay law repealed."

St. Louis Post Dispatch, Nov. 28, 2003
"Tax law misses the mark on executive pay."