| Summary: | 碩士 === 國立臺灣大學 === 法律學研究所 === 106 === Directors and executives'' compensation can have a significant impact on enterprises'' selection and retention of talented person, and it also plays a role in incentivizing in-service influential officers to make him work hard for the corporation''s prosperity. If people design compensation scheme appropriately, it will produce a virtuous circle of corporate performance, therefore benefits all participants of the company; on the contrary, if the amount of directors and executives'' compensation decouples from his performance, it will become a heavy burden for the declining company.
Regarding the excessive levels of compensation, shareholders, the public and regulatory agency have already shown a deeply concern about it in the United States in the 1930s, and the fight with it do not cease since then. Since the concept of "pay for performance" was promoted by scholars and gradually accepted by investors and shareholder services companies, etc., equity rewards have sprung up like mushrooms because of its simplicity to link with performance. However, the risk-averse nature of executives, hyperbolic discounting phenomenon make the total amount of equity awards expand to the figure that people can hardly tolerate. In addition, in order to obtain the equity rewards, executives sometimes unscrupulously make risky decisions at the expense of company''s welfare. Moreover, it may be one of the decisive element that results in the financial crisis of 2007-2008. To deal with all the troubles that was brought by excessive compensation, regulatory interventions by the government of the United States reached its peak after the crisis. For instance, the legislation of say on pay. In general, executive pay remains a highly concerned topic recently , and the reform strategies are aiming for "creating a more abundant and apparent compensation disclosure environment", "endowing more power for shareholders to express their opinions toward the suitability of the compensation package".
Speaking of Taiwan''s executive compensation practices, the default rule for determining executive''s compensation package is through shareholder meeting resolution or the pre-fixed amount in corporate charter, which is requested by article 196 of Taiwan''s company act. At first glance, it seems that shareholders have the ultimate power toward compensation decision, however, the truth is that due to the information asymmetry problem, collective problem, executive compensation in large listed company is fixed by the people who actually own real control power over that company. Thus, shareholders'' power is just "law in books", rather than "law in action". Taiwan''s authority-in-charge may have noticed the divergence between the law and the reality, in 2010 the compensation committee was introduced into Taiwan, trying to prevent executives from gaining improper excessive pay. Unfortunately, in practice, a fraction of listed companies which are forced to adopt this new regime are just going through the motions and do not take it seriously. As a result, the institution needs to be reformed to function as intended. With regard to equity compensation, the policy always hold the view that company can''t use it to reward "directors". The strict prohibition of directors getting equity reward, I argue, is over-regulated and may impair the flexibility of compensation plan.
As to compensation disclose policy, by making reference to English law, I contend that the disclosure shall be divided into two parts － "backward looking" part and "forward looking" part. The former is the traditional one, which includes confirmed compensation amount that is destined to give to the executives as an exchange for its dedication to the company in the past; the latter means that corporation shall set a compensation policy for the near future, for instance, the maximum change of the compensation amount. By asking for this kind of forward looking disclosure, shareholders at least can foresee the next several years'' largest expense on compensation.
At last, this essay delves into the feasibility of say on pay vote in Taiwan. Basically, I would like to point out that this institution may not fit the existing business environment in Taiwan. First, before the amendment of article 196 of Taiwan''s company act, introducing say on pay rule hastily may conflict with it, due to the "binding vote" nature of article 196. Second, the valuable effect that say on pay is expected to bring － public criticism of detected excessive pay, can be substituted by shareholder proposal. Therefore, I present the idea that "optimized shareholder proposal" can be an effective device to monitor inappropriate pay. What I call " optimized" is that the existing shareholder proposal rule in Taiwan needs to be fixed so as to ensure its availability. Furthermore, to guarantee the utmost utility of it, there must be some cooperative measures. For example, the increased obligation of compensation disclosure, the additional weight of violation of fiduciary duties in judgment, and the influence on the content of compensation contract. By using this tool, I hope that vastly powerless shareholders may hold the real power to express their voice about compensation, and suppress the emergence of excessive pay.
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