Executive Pay Legislation and Regulation

Companies face a range of regulations and legislation from multiple jurisdictions on executive compensation disclosure, taxation, and prohibited practices. New federal regulations could require enhanced disclosure on pay versus performance, human capital metrics and workforce diversity, and climate risk.

Executive compensation is generally covered by contract law, an area covered by state law rather than federal law. Initiatives at the federal level — legislation and regulation from the Securities and Exchange Commission (SEC) — have focused on disclosure rather than mandating pay levels or incentive structures. Concurrently, the federal tax code may be used to encourage specific compensation behaviors.

Local jurisdictions have enacted a patchwork of rules regarding non-compete agreements and restrictive covenants, while local jurisdictions have implemented taxes based on CEO pay ratio.

Legislation is unlikely to harmonize across jurisdictions in the near future given the divergent political atmospheres in various states.

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