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How Incentive Pay for Executives Isn't—And What We Can Do About It

May 2005

This article appears in the New York University Law Review, May 2005 Issue: Volume 80, Number 2.

When conversation turns to business, a topic guaranteed to provoke heated discussion is the extraordinary compensation that top American corporate executives enjoy. Periodically, as some new pinnacle is reached, the public reacts with a fresh wave of indignation. A well-known example is the story of Michael Ovitz. Hired as president of the Walt Disney Company by his friend, CEO Michael Eisner, Ovitz left the company after just fourteen months, having failed abysmally at his job by most reckonings. Upon his departure, however, Ovitz collected a "golden handshake" of not only his annual base salary of $1 million for the remainder of his five-year contract, but additional earnings from stock options and a generous severance package, totaling approximately $140 million. Outraged shareholders brought a derivative suit, and seven years after Ovitz's departure, the case is still wending its way through the courts-and through the headlines.

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