In 1992 the SEC introduced regulations requiring U S firms
In 1992, the SEC introduced regulations requiring U. S. firms to disclose to their shareholders information about the compensation of the firm’s five highest paid executives. Due to continuing public concern about high executive compensation levels, the SEC introduced further disclosure regulations in 2006 and 2010. These included requirements for a management discussion of its executive compensation policies, improved disclosure of executive stock option awards including the amount charged to expense during the year for such awards (recall that in 1992 stock option awards did not require expensing), golden parachutes, and increased risk disclosures. These regulations are briefly described in Section 10.7.
In Canada, the Canadian Securities Administrators introduced Form 51- 102F6, effective December 2008, and amended July 2011. These requirements are substantially similar to current SEC requirements.

a. What are the arguments in favour of giving shareholders more information about executive compensation, including its relationship to risk management?
b. Many of the disclosure requirements relate to longer- term incentive compensation, such as ESOs and/ or restricted stock. What is the argument in favour of awarding compensation such as ESOs and/ or restricted stock to senior executives?
c. What are the arguments against making executive pay too dependent on ESOs? Explain.
d. To what extent do you think that these disclosure requirements will improve the working of the managerial labour market? Explain. Include a definition of a well- working managerial labour market in your answer.
e. If the managerial labour market is fully efficient ( that is, analogous to an efficient securities market), would manager incentive plans based on risky performance measures such as share price and reported net income be needed? Explain why or why not.

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