June 11, 2009
Harvard Law School Professor Lucian Bebchuk LL.M. ’80 S.J.D. ’84 testified before the House Financial Services Committee in a hearing titled “Compensation Structure and Systematic Risk,” on Thursday, June 11, 2009. Watch a webcast of the hearing.
Bebchuk is expected to discuss how executive pay arrangements have produced incentives for excessive risk-taking and contributed to bringing about the current financial crisis and how compensation arrangements should be reformed to avoid such incentives. Read his prepared testimony. (PDF)
An expert on executive compensation, Bebchuk’s testimony is partially based on a recently published discusson paper entitled “Regulating Bankers’ Pay.” Co-authored with HLS S.J.D. student Holger Spamann, the paper argues that because executives have been paid with shares in bank holding companies or options on such shares, executives have had incentives to take excessive risks in order to personally benefit from the payoffs. Moreover, current regulatory attempts to discourage such excessive risks do not address this problem.
Bebchuk’s testimony is also based on research he conducted with recently appointed HLS Professor Jesse Fried ’92 for a forthcoming white paper entitled “Equity Compensation for Long-term Performance.”