There are several problems with executive pay as it currently exists:1) Too great as a percentage of company expenditures
2) Rewards short term risk taking
3) Punishes failure unreasonably
I would argue that the first isn't a subject of typical financial regulation, despite the fact that it gets the most popular press. It's mostly a question of competition and efficiency, which I think should be addressed in another manner (bigger post to come, I promise). Linking pay to long term performance is discussed somewhat, and while there are a variety of mechanisms to achieve this, the important feature is that a sufficiently large percentage of compensation is to linked short term performance, which allows fraud and risky behaviour to prosper. The third issue receives the least attention and relates to the ubiquitous practice of "one strike and your out" seen throughout most of the financial industry. While many attempt to defend this approach as a feature of a true meritocracy, it ignores the effect of chance. Investing is far from an exact science and luck undoubtedly plays a huge part in success. By overemphasizing any mistake whatsoever, the reward incentives are skewed in an nonconstructive and possibly risky manner.
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