A selection of interesting articles we found recently looking at executive rewards.
Is executive compensation a matter of relativity?
What, if anything, is wrong with high executive compensation? Is the common lay reaction of indignation and moral outrage justified? In this paper, Pierre-Yves Néron’s main goal is to articulate in a more systematic and philosophical manner the egalitarian responses to these questions. In order to do so, he suggests that we take some insights from recent debates on two versions of egalitarianism: a distributive one, according to which no one should be worse off than others because of unfair distributions of goods and resources, especially ones based on matters of luck or arbitrary factors, and a relational one, which maintains that egalitarian justice requires members of a society to relate to one another as equals.
Drawing on recent attempts to highlight the tricky nature of managerial authority, he argues that high inequalities in pay are not simply a distributional matter but should also be analysed through a relational lens. He also attempts to show that relational egalitarians are well-equipped to question the now dominant incentives view of CEO compensation.
Read further at: Pierre-Yves Néron. 2015. Egalitarianism and Executive Compensation: A Relational Argument.
Journal of Business Ethics, 132(1), 171-184.
Are managerial perks an incentive or misuse of firm resources?
What drives managerial perks? The commonly accepted view of perks suggests that they are a misuse of firm resources for managers’ private benefit (cost view), and thus perk consumption is unethical. However, an alternative view argues that perks can motivate managers to work hard and thus add to the value of the firm (incentive view): from this perspective, perk consumption is an ethical form of behaviour.
The fundamental difference between the two positions has critical implications for practice, and this article tests these competing views to determine the circumstances in which one view dominates the other. Using hand-collected data on perks in Chinese-listed companies, Hua Zhang, Yuanyang Song & Yuan Ding find strong empirical support for the incentive view, which is more likely to be held in firms with moderate ownership concentration. This article not only contributes to the literature on business ethics, but also has critical implications for managerial incentive practices in emerging economies.
Read more at: Hua Zhang, Yuanyang Song & Yuan Ding. 2015. What Drives Managerial Perks? An Empirical Test of Competing Theoretical Perspectives.
Journal of Business Ethics, 132(2), 259-275.
How does religiosity affect earnings management in banking?
Using an international sample of banks, Kiridaran Kanagaretnam, Gerald Lobo & Chong Wang study how differences in religiosity across countries affect earnings management. Given that religiosity is a major source of morality and ethical behaviour, it may reduce excessive risk taking and act as deterrence for earnings manipulations. Therefore, the researchers predict lower earnings management in societies that have higher religiosity.
Consistent with expectations, their cross-country analysis indicates that religiosity is negatively related to income-increasing earnings management for loss-avoidance and just-meeting-or-beating prior year’s earnings. They also find that religiosity reduces income-increasing earnings management through abnormal loan loss provisions. In additional tests, the authors document that religiosity increases the information value of bank earnings, with both earnings persistence and cash flow predictability being enhanced by higher religiosity. For the crisis period analysis (i.e., 2007–2009), their evidence shows that banks in countries with higher religiosity exhibit lower probability of reporting asset deterioration and lower probability of having poor performance.
Read more at: Kiridaran Kanagaretnam, Gerald J. Lobo & Chong Wang. 2015. Religiosity and Earnings Management: International Evidence from the Banking Industry.
Journal of Business Ethics, 132(2), 277-296.
Portuguese layperson’s perceptions of the legitimacy of executives bonuses in the GFC
The present study aimed to explore and map the views of Portuguese laypersons regarding the legitimacy of bonuses for senior executives. Two hundred and eight participants, with various levels of training in economics, were presented with a number of concrete scenarios depicting the circumstances in which senior executives have received bonuses of variable amounts, and they were asked to indicate the extent to which such bonuses may be considered as legitimate.
The scenarios were created by varying four factors likely to have an impact on people’s views:
(a) the extent to which the objectives fixed by the company have been met or not,
(b) the global economic context in which the company has performed,
(c) the availability of experienced senior executives in the sector under consideration, and
(d) the amount of money that has been awarded, in terms of both the euros and multiples of the average worker’s pay.
Five qualitatively different personal positions were found. The most common positions were that executive bonuses were either never legitimate (30 %) or not very legitimate (25 %). People without any background in economics were more likely to hold these views than people with a background in economics. The remaining 45 % of the participants supported the awarding of bonus, but their support was conditional, and the main condition was the extent to which the company’s objectives were met. Thus for most participants, the practice of awarding extra pay to senior executives was either (a) never legitimate, or (b) legitimate only when the company’s objectives have been attained, or (c) legitimate only when, even in a time of economic crisis, the company’s objectives have been surpassed.
For more details see: Joana Margarida, Sequeira Neto & Etienne Mullet. 2016. Perceived Legitimacy of Executives Bonuses in Time of Global Crisis: A Mapping of Portuguese People’s Views.
Journal of Business Ethics, 133(3), 421-429.
Tipping point: Managers’ self-interest, greed, and altruism
Katalin Takacs Haynes, Matthew Josefy & Michael Hitt explore the potential effects of managers’ greed and altruism on their behaviors and firm outcomes. Greed represents extreme self-interest whereas altruism reflects concern for others. They argue that managerial greed leads to a focus on short-term decisions and short-term firm performance.
Alternatively, managerial altruism normally produces a focus on longer term decisions and long-term firm performance. Managerial greed is also more likely to produce wrongdoing, whereas managerial altruism produces greater corporate citizenship behaviours. Managerial greed is likely to lead to turnover for non-performance–related reasons whereas managerial altruism is more likely to produce managerial turnover for performance reasons. Overall, the authors conclude that measured self-interest keeps managers focused on the firm’s goals and measured altruism helps the firm to build and maintain strong human and social capital. The extremes of either greed or altruism likely will harm firm performance. Thus, balance between managerial self-interest and managerial altruism leads to the greatest success.
Read more in: Katalin Takacs Haynes, Matthew Josefy & Michael A. Hitt. 2015. Tipping point: Managers’ Self-Interest, Greed, and Altruism.
Journal of Leadership & Organizational Studies, 22(3), 265-279.