'Clean Hands' and the CEO: Equity as an Antidote for Excessive Compensation

University of Pennsylvania Journal of Business Law, Vol. 12, Pages 101-165, 2010

65 Pages Posted: 26 Aug 2010 Last revised: 10 Jun 2015

See all articles by T. Leigh Anenson, J.D., LL.M., Ph.D.

T. Leigh Anenson, J.D., LL.M., Ph.D.

University of Maryland - Robert H. Smith School of Business

Donald O. Mayer

University of Denver - Department of Business Ethics and Legal Studies

Date Written: August 25, 2010

Abstract

The financial crisis has placed executive pay at center stage in the corporate governance reform debate in the United States and around the world. We consider whether a judge-made solution to the problem will support the regulatory reform effort to reduce or eliminate excessive compensation. In particular, we assess whether courts should supplement existing contract law with the equitable defense of “clean hands” (unclean hands). Doing so would strengthen the legal position of the company in relation to the CEO by providing the Board a right to refuse excessive bonuses or other payments in order to protect shareholders and other stakeholders. Because courts have not considered the defense in cases involving excessive executive pay, we ascertain whether it is an appropriate addition to the current law and construct a model of unclean hands to establish under what circumstances it should apply.

Keywords: executive compensation, executive pay, equity, unclean hands, clean hands, equitable defenses, remedies, financial reform, corporate governance, business ethics, contract, executive employment contracts

JEL Classification: G38, G39, K12, K20, K22, K30, K40, K41, K49

Suggested Citation

Anenson, T. Leigh and Mayer, Donald O., 'Clean Hands' and the CEO: Equity as an Antidote for Excessive Compensation (August 25, 2010). University of Pennsylvania Journal of Business Law, Vol. 12, Pages 101-165, 2010, Available at SSRN: https://ssrn.com/abstract=1665967

T. Leigh Anenson (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
440-336-4468 (Phone)

Donald O. Mayer

University of Denver - Department of Business Ethics and Legal Studies ( email )

2101 S. University Blvd
Denver, CO 80208-8921
United States

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