We’ve brought together a few articles looking at the factors affecting CEO remuneration.
Macroeconomic fluctuations as sources of luck in CEO compensation
Macroeconomic fluctuations in interest rates, exchange rates, and inflation can be considered sources of good or bad “luck” for corporate performance if management is unable to adjust operations to these fluctuations. Based on a sample of 2,091 US firms, the authors decompose the impacts of macroeconomic fluctuations on three measures of CEO compensation.
This study provides empirical support for the importance of considering macroeconomic fluctuations in designing CEO incentive schemes. It adds to the managerial power literature on moral hazard and CEO compensation by pinpointing the obvious risk that the CEO in an asymmetric and non-linear reward system will be inclined to prioritise his/her own cash flow at the expense of fulfilling an assumed agency role. The policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for.
Hsin-Hui Chiu, Lars Oxelheim, Clas Wihlborg & Jianhua Zhang. 2016. Macroeconomic Fluctuations as Sources of Luck in CEO Compensation.
Journal of Business Ethics, 136(2), 371-384.
Do CEO characteristics and compensation relate to corporate social performance?
Do unobservable CEO characteristics predict corporate social performance (CSP) and are they significantly correlated with CEO compensation? How meaningful is stock-based CEO compensation as a predictor of CSP?
To answer these questions, the author empirically examines the relationship between stock-based CEO compensation and CSP while accounting for unobservable CEO characteristics. This study finds that CEO fixed effects (CEO dummies) account for a significant variance in CSP and that these fixed effects are correlated with CEO compensation variables in a statistically significant manner.
The findings suggest that unobservable CEO characteristics should be accounted for when examining the effect of CEO compensation variables on CSP. The findings also highlight the usefulness of stock-based compensation instruments for shareholders and other stakeholders who care about CSP and intend to promote CEO attention to social and ethical issues.
Jingoo Kang. 2017. Unobservable CEO Characteristics and CEO Compensation as Correlated Determinants of CSP.
Business & Society, 56(3), 419-453.
The ethics of the living wage: a review and research agenda
To date, business ethicists, corporate social responsibility scholars as well as management theorists have been slow to provide a comprehensive and critical scrutiny of the Living Wage concept. The aim of this article, therefore, is to conceptualise the living wage (LW) in its philosophical as well as practical dimensions in order to open up the ethical implications of its introduction and implementation by companies.
The authors set out the legal, socio-institutional and economic contexts for the debates around the LW and review arguments for, and against, it. Key philosophical arguments from the perspectives of sustainability, capability and externality are invoked and discussed in order to demonstrate the issues and challenges involved for companies, state and civil society actors.
Relevant examples from the private sector are examined to demonstrate some of the practical issues involved when the LW is introduced by employers. The article also recommends avenues for a research agenda into the LW for business ethicists, CSR and management researchers in contexts such as the UK, where a voluntary, rather than mandatory, approach to the implementation of the LW is adopted.
Read this article in full for free: Werner, Andrea. & Lim, Ming. 2016. The Ethics of the Living Wage: A Review and Research Agenda.
Journal of Business Ethics, 137(3), 433-447.
The association between gender-diverse compensation committees and CEO compensation
These authors examine the association between gender-diverse compensation committees and CEO pay and find that CEO compensation levels are negatively associated with gender-diversity of the compensation committee, but not gender-diversity of the board.
Furthermore, the researchers find that excess CEO compensation is negatively related to subsequent return on assets for firms with an all-male compensation committee but not for firms with a gender-diverse compensation committee.
These results suggest that CEOs do receive some level of excess compensation which can be mitigated by having one or more females on the compensation committee.
Bugeja, M., Matolcsy, Z. & Spiropoulos, H. 2016. The Association Between Gender-Diverse Compensation Committees and CEO Compensation.
Journal of Business Ethics, 139(2), 375–390.
Green or greed? An alternative look at CEO compensation and corporate environmental commitment
This study relies on environmental stewardship, a stakeholder-enlarged view of stewardship theory, and institutional theory to analyse the relationship between CEO compensation and firms’ environmental commitment in a worldwide sample of 520 large listed firms.
The findings show that environment friendly firms pay their CEOs less total compensation and rely less on incentive-based compensation than environment careless firms. This negative relationship is stronger in institutional contexts where national environmental regulations are weaker. These findings have important theoretical meaning and practical implications.
Results show that CEOs do not necessarily act opportunistically; rather some of them may be willing to act as stewards of the natural environment and accept a lower, less incentive-based compensation from environment friendly firms. This study also provides evidence of the important influence of the institutional context in setting-up CEO compensation as the relationship is stronger when national environmental regulations are weaker.
The findings question the universal validity of agency theory in explaining CEO compensation. Compensation based on pecuniary incentives might be less indicated to motivate CEOs who feel rewarded by playing a stewardship role for environment friendly firms. When designing compensation for CEOs, compensation committees and external compensation advisors should consider psychological and institutional factors that might affect CEO motivation.
Francoeur, C., Melis, A., Gaia, S. et al. 2017. Green or greed? An alternative look at CEO compensation and corporate environmental commitment.
Journal of Business Ethics, 140(3), 439–453.
Management and income inequality: a review and conceptual framework
Income inequality in the US has now reached levels not seen since the 1920s. Management, as a field of scholarly inquiry, has the potential to contribute in significant ways to our understanding of recent inequality trends.
Beal and Astakhova review and assess recent research, both in the management literature and in other fields. The authors then delineate a conceptual framework that highlights the mechanisms through which business practice (and, indirectly, business pedagogy and scholarship) may be linked to income inequality.
The authors then outline four general areas in which management scholars are uniquely positioned to contribute to ongoing research:
(1) data and description, (2) organizational dynamics, (3) collective action, and (4) value flows and trade-offs.
To stimulate future research, the authors highlight a number of relevant research questions and link these questions to existing management research streams that could be leveraged to address them.
Beal, B.D. & Astakhova, M. 2017. Management and income inequality: a review and conceptual framework.
Journal of Business Ethics, 142(1), 1–23.