...The story begins during Bill Clinton's earliest days in the White House. Soon after his election, he worked with Congress to limit corporations' ability to deduct executive compensation from their taxes, as they do for ordinary workers' wages and other expenses of doing business. A limit of $1 million was set for deductions for executive compensation.
There was a big exception, though. Compensation that was dependent on the firm's performance was exempt from the threshold.
...As a result, the new limit didn't prevent executives from receiving ever fatter paychecks -- but they got the money in stock and options, rather than in cash. Clinton and Congress had failed to solve the problem.
"My cynical opinion is that they were trying to look like they were doing something," said Steven Balsam, a professor at Temple University.
Some, like Warren, say the provision was worse than useless. In a speech last week, she called on her colleagues in Congress to change the rules, although without discussing how they'd come about.
"This tax incentive has encouraged financial firms to compensate executives with massive bonuses – bonuses that too often reward short-term risk-taking instead of sustained, long-term growth," she said. "We can close that loophole and stop pushing companies to reward short-term thinking."
Lynn Stout, a law professor at Cornell University and an outspoken skeptic of today's corporate governance, says
the Clinton-era shift led executives to try to boost stock prices in the near term by laying off employees and spending less on research and development. These measures, according to this line of thinking, made firms more profitable in the short term because their costs were lower, which resulted in high stock prices, but less able to generate value in the long term for investors and the economy....
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/04/27/bill-clinton-tried-to-limit-ceo-pay-but-elizabeth-warren-thinks-he-made-it-worse/
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