In their ‘Ethical and Technical Challenges in Compensating for Harm Due to Solar Radiation Management Geoengineering’ (2014), Toby Svoboda and Peter Irvine (S&I) argue that there are significant technical and ethical challenges that stand in the way of crafting a just solar radiation management (SRM) compensation system. My aim in this article is to contribute to the project of addressing these problems. I do so by focusing on one of S&I’s important ethical challenges, their claim that the (...) polluter pays principle (PPP) is too problematic to be useful in determining responsibility for SRM compensation. Their argument for the latter claim consists in a series of allegations, mostly in the form of questions, that are thought to indicate serious difficulties standing in the way of using the PPP to craft a just compensation system. I argue that S&I fail to substantiate these allegations: the PPP is not as problematic as S&I suggest, and moreover, is a viable candidate for determining responsibility for SRM compensation. S&I raise five allegations against the PPP. I discuss each in turn. (shrink)

How is the (il)legitimacy of manager compensation constructed in social interaction? This study investigated discursive processes through which heavily contested executive pay schemes of the Finnish energy giant Fortum were constructed as (il)legitimate in public during 2005–2009. The critical discursive analysis of media texts identified five legitimation strategies through which politicians, journalists, and other social actors contested these schemes and, at the same time, constructed subject positions for managers, politicians, and citizens. The comparison of two debate periods surrounding the (...) 2007–2008 financial crisis revealed significant differences in the discursive strategies and the corresponding moral struggles linked to legitimation of executive compensation. The analysis highlights a change in moral reasoning by social actors as they adapt their justifications to a changing social context. This study has important implications for our understanding of the ethical aspects and socio-political embeddedness of manager compensation. In particular, it adds to our knowledge of organizational legitimacy by showing how discursive strategies and the corresponding morality constructions used to (de)legitimate business activities can shift quickly as a result of a change in the social and political climate surrounding the legitimation struggle. (shrink)

Recent research indicates that compensation structure can be used by firms to discourage their employees from whistleblowing. We extend the ethics literature by examining how compensation structures and financial rewards work together to influence managers’ decisions to blow the whistle. Results from an experiment indicate that compensation with restricted stock, relative to stock payments that lack restrictions, can enhance the likelihood that managers will blow the whistle when large rewards are available. However, restricted stock can also threaten (...) the effectiveness of whistleblowing systems without the presence of large financial rewards for whistleblowing. Thus, the large potential rewards for whistleblowing enacted by the Dodd–Frank Act appear timely as firms are moving toward compensation agreements that include greater proportions of restricted stock. (shrink)

As a response to climate change, geoengineering with solar radiation management has the potential to result in unjust harm. Potentially, this injustice could be ameliorated by providing compensation to victims of SRM. However, establishing a just SRM compensation system faces severe challenges. First, there is scientific uncertainty in detecting particular harmful impacts and causally attributing them to SRM. Second, there is ethical uncertainty regarding what principles should be used to determine responsibility and eligibility for compensation, as (...) well as determining how much compensation ought to be paid. Significant challenges loom for crafting a just SRM compensation system. (shrink)

In this article, we examine how firms design executive compensation in light of their risk environment. Prior literature shows that corporate environmental responsibility (CER) of a firm inversely affects firm risk. We argue that firms with better CER performance benefit from the reduced firm risk, and therefore are more likely to provide greater managerial risk‐taking incentives to encourage the risk‐averse managers to undertake risk‐increasing but positive net present value (NPV) investments. Consistent with our hypotheses, we find that a firm’s (...) CER rating is positively associated with its CEO risk‐taking incentives (vega) in the following year. We also document cross‐sectional variations in the CER‐vega relationship, that is, a weaker association in the controversial industries. This study contributes to the literature by investigating the role of CER on executive compensation design from the perspective of risk management. (shrink)

We thank the commentators for their interesting and helpful feedback on our previously published target article (Svoboda and Irvine, 2014). One of our objectives in that article was to identify areas of uncertainty that would need to be addressed in crafting a just SRM compensation system. The commentators have indicated some possible ways of reducing such uncertainty. Although we cannot respond to all their points due to limitations of space, we wish to address here the more pressing criticisms the (...) commentators have offered. (shrink)

Governing boards utilize executive compensation contracts in an attempt to align executive actions with corporate goals. The objective is to ensure that executive performance provides value to the organization in terms of successful outcomes. A key performance criteria typically specified in CEO compensation contracts is earnings targets. However, using earnings as a performance evaluation may be problematic because some firms exhibit robust and sustained earnings over time (high earnings persistence), and other firms, such as high growth oriented firms, (...) exhibit weak or sometimes negative earnings over time (low earnings persistence). Our study reveals that the effect of high earnings persistence results in firms that focus more heavily on cash compensation (salary and bonus) rather than on equity compensation (stock options, etc.) to compensate executive performance. Additionally, for firms characterized by low earnings persistence, our study indicates that cash flows from operations act as a supplementary performance measure to accounting earnings, and become increasingly important as a means to justify executive cash compensation. (shrink)

Companies are expected to monitor sustainable behaviour to help improve performance, enhance reputation and increase chances of survival. This paper examines the relationship between sustainability committees and independent external assurance on the inclusion of sustainability-related targets in CEO compensation contracts. Using a sample of UK FTSE350 companies for 2011–2015 and controlling for governance and firm characteristics, we find both board-level sustainability committees and sustainability reporting assurance have a positive and significant association with the inclusion of sustainability terms in (...) class='Hi'>compensation contracts. However, there is no joint impact between the voluntary use of independent external assurance and the role of sustainability committees on CEO compensation contracts. Sustainability-related terms in compensation contracts are more likely to be included, and higher compensation is likely to be paid, when assurance is provided by a Big4 firm and when a company operates in a sustainability-sensitive industry. Our findings highlight the potential of assured sustainability reports in assessing CEO performance in sustainability-related tasks, especially when sustainability metrics are included in CEO compensation contracts. Overall, our results suggest companies that invest in voluntary assurance are more likely to monitor management’s behaviour and be concerned about the achievement of sustainability goals. (shrink)

Managers often ask why their firm should have an ethics program, especially if no one has complained about unethical behavior. The pursuit of business ethics can cost money, they say. It can lose sales to less scrupulous competitors and can drain management time and energy. But as Harvard business professor Francis Aguilar points out, ethics scandals (such as over Beech-Nut's erzatz "apple juice" or Sears's padded car repair bills) can severely damage a firm, with punishing legal penalties, bad publicity, (...) and irreparably injured customer relations. Equally important if less obvious, unethical behavior can undermine a firm's organizational spirit. On the other hand, Aguilar argues, in a well run firm, ethical programs can actually enhance corporate performance, strengthening the company at every level and supercharging employee risk taking and innovation. In Managing Corporate Ethics, Aguilar shows managers how to create ethical programs within their organizations that not only discourage large-scale wrongdoing, but can contribute substantially to the achievement of corporate excellence. Aguilar's program is down-to-earth and comprehensive, and based on his extensive research on highly successful, ethical companies, both large and small. He recommends action on three fronts: first, get senior management to provide effective ethical leadership; second, set up an ethics program that promotes concern for the interests of people affected by the firm's operations and that provides safeguards against corrupting business pressures; and third, staff the company with ethical people and surround the organization with ethical advisors (including legal, financial, accounting, tax, and marketing consultants). To illuminate this three-step program, Aguilar incorporates the lessons learned in his in-depth study of ten prominent firms with proven successful ethics programs--among them Hewlett-Packard, Johnson & Johnson, Nucor Steel, Cray Research, ServiceMaster, and Texas Instruments. He examines Lincoln Electric's attention to compensation and job security to ensure quality products and to reduce the pressure or temptation to act unethically. He shows how General Mills, while pushing product line managers to compete aggressively, uses corporate staff units to guard against illegal or unacceptable claims (testing cake recipes, for example, to see if a product's quality fails under the less-than-perfect conditions of a normal kitchen). And he details how Armstrong World Industries uses pep talks, inspirational stories, role models, and ready access to management to promote ethical standards among employees. Throughout, Aguilar demonstrates convincingly that an ethical program pays dividends: that employees, suppliers, customers, and the community at large know when they are being treated in a positive and constructive manner, and are likely to respond in kind. Packed with real life examples of successful (and failed) ethical programs, Managing Corporate Ethics is a valuable roadmap to an often overlooked source of business success. (shrink)

The eighties and nineties have seen much debate about CEO compensation. Critics of CEO compensation support their contention of excessive and inequitable CEO pay based on a number of factors and premises. This paper examines the validity of these arguments. We show why many of these arguments fail to persuade, in part, because they attempt to determine propriety of CEO pay without having a definitive standard for comparison. Arguments based on comparisons between CEO pay and the pay of (...) other individuals or jobs or between CEO pay and firm performance are shown to be an insufficient mechanism to determine the appropriateness of CEO compensation. (shrink)

Spreadsheets are heavily employed in administration, financial forecasting, education, and science because of their intuitive, flexible, and direct approach to computation. They represent examples for “active documents” which are considered very worthwhile in the field of Knowledge Management. But these activity traits also lead to usability and maintenance problems, as spreadsheet-based applications grow evermore complex and longlived. We argue that these difficulties come from a fundamental bias of spreadsheets towards computational aspects of the conceptual models underlying the applications, i.e., (...) a semantic bias. Concretely, we present the software architecture of the SACHS project geared towards a semantic enhancement of MS Excel spreadsheets that aims at compensating this semantic bias. (shrink)

We examine the influences of social capital, source credibility, and fairness perceptions on the judgments of experienced compensation committee members who are considering a proposal to reduce management’s performance targets in the middle of a compensation cycle due to difficult circumstances. Eighty-nine U.S. public company CC members participated in a 2 × 2 experiment with social capital and source credibility each manipulated as low or high, and outcome fairness to management, process fairness to shareholders, and outcome (...) fairness to shareholders included as measured variables. While social capital and source credibility are not significant, we find that outcome fairness to the CEO and outcome fairness to shareholders are significantly related to CC members’ support for reducing performance targets during a compensation cycle. In addition, we find that more experienced CC members are less supportive of changing the performance targets. The significant interactions include one between outcome fairness to shareholders and process fairness to shareholders, which suggests that CC member support for the proposal relies on both process and outcome fairness being present. Finally, the participants’ qualitative responses reflect arguments both for and against adjusting performance targets. Overall, the results highlight the important roles of fairness and director experience in boardroom decisions and provide important insights into factors affecting CC judgments. (shrink)

Shareholders with standard monetary preferences will give a manager incentives to increase firm profits, which can be achieved with equity grants. When shareholders are socially responsible, in the sense that they also value corporate social performance, it is not clear which incentives the manager should receive. Yet, in a standard principal–agent model, we show that the optimal contract is surprisingly simple: it consists in giving equity holdings to the manager. This is notably because the stock price will incorporate expected profits (...) as well as the social performance of the firm, to the extent that it is valued by shareholders. Consequently, equity holdings give the manager incentives to jointly maximize the profits and the social performance of the firm according to shareholders’ preferences. To facilitate alignment of interests, more socially responsible firms will optimally hire more socially responsible managers. We conclude that neither the shareholder primacy model nor equity-based managerial compensation is necessarily inconsistent with the attainment of social objectives. (shrink)

ABSTRACT In this paper I attempt to show that our commonly shared ideas of justice, which include principles of fair distribution and of compensation for past injustices, tend to come into conflict in practice, and generate serious dilemmas for persons in certain positions of authority, such as managers. I identify the source and nature of such dilemmas, and sketch a rough pattern for analysing and partially resolving conflicts between the duty not to discriminate unfairly and the duty to compensate (...) for past unfair discrimination. After stating what I regard as widely shared ideas of justice, I emphasise their application to actual policy decisions of the small‐scale sort, using general precepts for avoiding or minimising conflicts. The precepts include a commitment to the priority of compensatory justice. The paper includes theoretical portions, principally defences of my position against other views on the relationship between compensation and fair distribution. I end with an examination of the virtues and limitations of money as a tool for compensatory social policies. (shrink)

This paper examines the ethics of contemporary managerial compensation in the context of executive stock options. Economic considerations would dictate that executive stock options should be adjusted to eliminate the effect of overall stock market movements which are beyond the control of the executive. However, in practice, most executive stock options are not adjusted to control for these outside factors. Agency considerations are the most likely culprit. Adjusting for the influence of outside factors, such as a generally rising stock (...) market, from executive stock options sets a higher bar for managers to reach. Furthermore, traditional accounting standards permitted firms that did not adjust options to avoid reporting options as expenses. This presents CEOs and boards of directors with a major ethical dilemma. On the one hand, their duty to their shareholders and stakeholders dictates that executive stock options should be adjusted to eliminate outside noise from unrelated movements in the overall stock market. However, financial statements are presented in the language of accounting. If the overwhelming majority of the users of a language define a particular item in one way, then to deviate from the norm implies that the recipient of such a deviant statement may not properly interpret the statement. Likewise, if the standard practice is for firms to use unadjusted options and thus under-report expenses, to deviate from this industry norm risks that users of financial statements would not properly interpret the financial statements, with perhaps negative consequences for the shareholders. In short, if "everyone else does it," then it could be wrong for an individual firm to deviate from the norm as that would harm the shareholders. (shrink)

Compensation systems are an integral part of the relationships organizations establish with their employees. For many years, researchers viewed pay systems as an efficient way to bring market-like labour exchanges inside organizations. This view suggested that only economic considerations matter for understanding how compensation systems effect organizations and their employees. Advances in organizational research, particularly those focused on issues of justice and fairness, suggest that the fully understanding the outcomes of compensation systems requires examining their psychological, social, (...) and moral effects. (shrink)

This article reviews the relationship between managed care and public health. Managed care, with its seemingly infinite structural and organizational variation, dominates the modern American health-care system for the non-elderly U.S. population. Through its emphasis on standarhzed practice norms and performance measurement, coupled with industrial purchasing techniques, prepayment, risk downstreaming, and incentives-based compensation, managed care has the potential to exert considerable influence over the manner in which the health-care system is organized and functions. Given the degree to which the (...) attainment of the basic public health goal of protecting the public against population health threats for which there are known and effective medical interventions depends on the successful interaction between public health policy and the medical care system, the importance of a viable working relationship between public health and managed care is difficult to overstate.The potential for conflict between public health and medical care is nothing new; indeed, delineating the boundaries of public health to shape and influence medical practice has occupied the energies of policymakers and the medical industry for well over a century. (shrink)

This article reviews the relationship between managed care and public health. Managed care, with its seemingly infinite structural and organizational variation, dominates the modern American health-care system for the non-elderly U.S. population. Through its emphasis on standarhzed practice norms and performance measurement, coupled with industrial purchasing techniques, prepayment, risk downstreaming, and incentives-based compensation, managed care has the potential to exert considerable influence over the manner in which the health-care system is organized and functions. Given the degree to which the (...) attainment of the basic public health goal of protecting the public against population health threats for which there are known and effective medical interventions depends on the successful interaction between public health policy and the medical care system, the importance of a viable working relationship between public health and managed care is difficult to overstate.The potential for conflict between public health and medical care is nothing new; indeed, delineating the boundaries of public health to shape and influence medical practice has occupied the energies of policymakers and the medical industry for well over a century. (shrink)

The debate over compensation packages for top executives is discussed. Particular emphasis is placed on the decoupling of CEO pay and organizational performance. A contrast is drawn between firms that are owner-controlled and those that are manager-controlled. Owner-controlled firms tend to be more market-driven. In manager-controlled firms, however, ownership can become diluted to the point where decisions may not always be in the best interest of shareholders. The process of determining CEO compensation packages is examined, and special attention (...) is given to the handling of stock options. In order to stem the threat of increased government intervention, suggestions are made for increasing the leverage of compensation committees and of shareholders in general. (shrink)

Executive compensation has long been a prominent topic in the management literature. A main question that is also given substantial attention in the business ethics literature—even more so in the wake of the recent financial crisis—is whether increasing levels of executive compensation can be justified from an ethical point of view. Also, the relationship of executive compensation to instances of unethical behavior or outcomes has received considerable attention. The purpose of this paper is to explore the (...) social, ecological, and existential costs of economic incentives, by discussing how relying on increasing levels of executive compensation may have an adverse effect on managerial performance in a broad sense. Specifically, we argue that one-dimensional economic incentives may destroy existential, social, and systemic values that influence the manager’s commitment to ensure responsible business conduct, and have negative spillover effects that may reduce the manager’s performance. There are well-documented findings that demonstrate that reliance on sources of extrinsic motivation (such as economic incentives) may displace intrinsic motivation. Our perspective is a holistic one, in the sense that we will explore the influence of sources of extrinsic motivation on the manager’s intrinsic commitment to different types of values. We will in particular investigate how it may influence the manager’s ethical reflection and behavior or lack thereof. (shrink)

Abstract:While many aspects of stock and option based compensation for corporate officers remain controversial, we suggest that the growing trend for similar practices in favor of boards of directors will prove to be even more contentious. High-ranking corporate managers do not set their own salaries nor authorize their own stock options. By contrast, boards of directors do, in fact, set their own compensation packages. Other potential conflicts of interest include setting option performance targets, stock buybacks, stock option resets (...) and reloads, consolidations (mergers and acquisitions), and service on multiple boards. As trust is the most valuable commodity in a capitalist society, we suggest that these potential conflicts of interest and related outcomes may ultimately serve to erode any anticipated benefits of director stock compensation. (shrink)

This chapter describes a way of thinking, really a family of ways of thinking, which allows incomparables to be left incomparable. In the chapter, the patterns of decision making are very ordinary and unsurprising. But the point is to show that people do have ways of thinking that do not require them to balance the unbalanceable, and to begin to develop a vocabulary that helps reveal how they do this. The chapter discusses the following five dilemma‐managing principles: the rain‐check principle; (...) the anti‐compromise principle; compensation; the looking back principle; and unequal opportunities. It also considers how people think through some moral non‐dilemmas. That will help them to see what is going on in some non‐moral dilemmas. The given example concerns broken promises. Things get more complicated when the choice is not between two simple possibilities but a series, among some of which one has preferences. The chapter explains this with another trivial example. (shrink)

Nathan Lee Kaplan develops a talmudic perspective on management ethics. By analyzing the central ethical dilemmas of corporate managers in light of applicable traditions from the Oral Torah, this book offers a critical bridge between the contemporary business corporation and rabbinic Judaism’s foundational tradition. The issues studied thereby include organizational culture, fraud and corruption, whistle-blowing, investor and employment relations, executive compensation, corporate social responsibility and environmental sustainability.

Since the attack on the World Trade Center in New York, and on the Pentagon in the United States, concerns over security issues have been at an all-time high in this country. Both state and federal governments continue to discuss legislation on these issues amid much controversy. One key concern of both employers and employees is the extent that employers, espousing a "need to know" mentality, continue to expand their capability and implementation of surveillance of employees in the workplace. With (...) the technology typically growing faster than the speed of legislation, protective or permissive, the management and legal issues involved in electronic monitoring of employee communications in the workplace, are and well should be on the agenda for discussion of every management and legal team in American business today. Companies have a legitimate right to protect their trade secrets from disclosure by disgruntled employees. Similarly, companies also have a duty to protect their good names and reputations from unauthorized employee communications with outside parties, and even other employees, that may damage them. It is also a prime duty of management to ensure, in their direction of their workforces, that the employees execute their responsibilities by working full time on their stated objectives. In this regard, any management that fails to oversee its workforce to ensure that employees are not expending valuable company time, for which they are being compensated, on personal business, including unauthorized communications, is remiss in its responsibilities to its shareholders. The company may see a reduction of the price of its shares in the marketplace if it does not protect the economic interests of its shareholders. (shrink)

We explore the extent to which Boards use executive compensation to incite firms to act in accordance with social and environmental objectives (e.g., Johnson, R. and D. Greening: 1999, Academy of Management Journal 42(5), 564-578; Kane, E. J.: 2002, Journal of Banking and Finance 26, 1919-1933.). We examine the association between executive compensation and corporate social responsibility (CSR) for 77 Canadian firms using three key components of executives' compensation structure: salary, bonus, and stock options. Similar to (...) prior research (McGuire, J., S. Dow and K. Argheyd: 2003, Journal of Business Ethics 45(4), 341-359), we measure three different aspects of CSR, which include Total CSR as well as CSR Strengths and CSR Weaknesses. CSR Strengths and CSR Weaknesses capture the positive and negative aspects of CSR, respectively. We find significant positive relationships between: (1) Salary and CSR Weaknesses, (2) Bonus and CSR Strengths, (3) Stock Options and Total CSR; and (4) Stock Options and CSR Strengths. Our findings suggest the importance of the structure of executive compensation in encouraging socially responsible actions, particularly for larger Canadian firms. This in turn suggests that executive compensation can be an effective tool in aligning executives' welfare with that of the "common good", which results in more socially responsible firms (Bebchuk, L., J. Fried and D. Walker: 2002, The University of Chicago Law Review 69, 751-846; Zalewski, D.: 2003, Journal of Economic Issues 37(2), 503-509). In addition, our findings suggest the importance of institutional context in influencing the association between executive compensation and CSR. Further implications for practice and research are discussed. (shrink)

The Clinton administration's revised rules regulating but not prohibiting the common practice in managed care of linking physician compensation with cost cutting and control of services demonstrates the complexity of ethical issues in managed care. As originally proposed, the federal guidelines on payment for Medicare and Medicaid services would have precluded any interrelationship between payment to physicians and delivery of services. Such a restriction would have gutted the primary mechanism in managed care plans to curb the unacceptably high cost (...) of healthcare delivery: making physicians directly responsible for cost control by placing them at direct financial risk. At first blush such a linkage seems to involve an obvious and irreconcilable conflict of interest. How can a physician be responsible for the well-being of a patient while at the same time aware that a proportion of his or her income is linked to the provision of cost-conscious care? (shrink)

ABSTRACT:The link between firm corporate social performance (CSP) and executive compensation could be driven by a sorting effect (a firm’s CSP is related to the initial levels of compensation of newly hired executives), or by an incentive effect (incumbent executives are rewarded for past firm CSP). Existing empirical work focuses exclusively on the incentive effect. In contrast, in this paper we explore the sorting effect of firm CSP on the initial compensation of newly hired executives. In doing (...) so, we develop a novel theoretical approach based on an integration of stakeholder theory and human capital theory, suggesting a positive association between the initial compensation of executives and firm CSP strengths and concerns. It also suggests that the strength of this relationship varies between different executive roles (as a function of stakeholder-management responsibilities). We find support for this theoretical framework in a large sample of newly-hired executives employed by Standard & Poor 1500 firms. (shrink)

We examine managers’ earnings forecasts for evidence of incentive alignment or subversion characteristics. We find that forecasts by managers compensated via relative performance (RP) goals are more likely to be pessimistic and less accurate than those by managers compensated via absolute performance (AP) goals. For firms not issuing earnings forecasts, disclosures in Form 10-Ks are more pessimistic for RP firms than for AP firms. Furthermore, we find that RP firms perform worse than AP firms in terms of future stock returns. (...) Overall, our evidence is consistent with a proposition that, contrary to sound ethical business practices, RP managers make self-serving earnings disclosures to subvert the efforts of their peers to meet performance targets more easily. (shrink)

For over a decade, managed care has profoundly altered how healthcare is delivered in the United States. There have been concerns that the patient-physician relationship may be undermined by various aspects of managed care, such as restrictions on physician choice, productivity requirements that limit the time physicians may spend with patients, and the use of compensation formulas that reward physicians for healthcare dollars not spent. We have previously published data on the effects of managed care on the physician-patient relationship (...) from the physician's perspective. In 1999, we collected data on the impact of managed care arrangements on the physician-patient relationship from the patient's perspective. This article discusses our collective findings. (shrink)

This study uses the institutional perspective to examine the interaction effects between the subnational institutional context and firm-level parameters on corporate environmental behaviors, based on a unique cross-sectional data set of private firms compiled from three different sources in China. Our results suggest that both enforcement stringency of environmental regulations at the provincial-level and private firms’ foreign ownership negatively affect compensation fees, which are levies charged for firms’ emissions. Enforcement stringency also moderates the firm-level relationship between foreign ownership and (...) compensation fees, but such a cross-level moderating effect holds only for private firms with non-HMT investments. (shrink)

Investors with standard monetary preferences will give a fund manager incentives to increase firm profits, which can be achieved through a share in profits via carried interest. When investors have social preferences, it is not clear which incentives the manager should receive. We explore this puzzle by applying an agency theory perspective to impact investing, a practice where investors seek both financial returns and a measurable social or environmental impact. Using an inductive, qualitative approach, we identify and describe the ethical (...) tensions and challenges faced by fund managers to structure and implement impact-based variable compensation schemes. Our results indicate that economic incentives tied to non-financial objectives are useful to alleviate goal incongruity between principals and agents during fund creation but have the potential to lead to perverse effects during the fund lifecycle, where managers may exploit subjective non-financial metrics to maximize personal wealth. We introduce the concept of impact fidelity, a conceptual equivalent of fiduciary duty, to ensure that investment decisions reflect the asset owner’s impact preferences. (shrink)

While numerous studies have examined the impact that powerful CEOs have on their compensation and overall firm decisions, relatively little is known about how powerful CFOs influence their compensation and important firm financial reporting and operational outcomes. This is somewhat surprising given the critical role CFOs play in the financial reporting process of a firm. Using managerial power theory and the theory of power and self-focus :635–658, 2013), we predict that powerful CFOs employ a two-part strategy to camouflage (...) excessive incentive compensation above what efficient contracting would dictate. First, powerful CFOs use their power and influence to negotiate shorter incentive pay duration to maximize the present value of their performance—based compensation. Second, when their incentive equity compensation vests, we suggest that CFOs manage earnings to further enhance their personal income. Consistent with our theoretical expectations, we find higher levels of income-increasing accrual-based earnings management and real transactions management, a potentially unethical practice, in firms with powerful CFOs who have short pay durations. We discuss the implications of our analysis in the context of mitigating CFO power and managing the ethical environment “tone at the top.”. (shrink)

In face of rising flood losses globally, the approach of “living with floods,” rather than relying on structural measures for flood control and prevention, is acquiring greater resonance in diverse socioeconomic contexts. In the Lerma Valley in the state of Mexico, rapid industrialization, population growth, and the declining value of agricultural products are driving livelihood and land use change, exposing increasing numbers of people to flooding. However, data collected in two case studies of farm communities affected by flooding in 2003 (...) illustrate that the concept of flood as agricultural “hazard” has been relatively recently constructed through public intervention in river management and disaster compensation. While farming still represents subsistence value to rural households, increasingly rural communities are relying on non-farm income and alternative livelihood strategies. In this context, defining flooding in rural areas as a private hazard for which individuals are entitled to public protection may be counterproductive. A different approach, in which farmers’ long acceptance of periodic flooding is combined with valuing agricultural land for ecoservices, may enable a more sustainable future for the region’s population. (shrink)

When subordinates have suffered an unfairness, managers sometimes try to compensate them by allocating something extra that belongs to the organization. These reactions, which we label as managerial Robin Hood behaviors, are undertaken without the consent of senior leadership. In four studies, we present and test a theory of managerial Robin Hoodism. In study 1, we found that managers themselves reported engaging in Robin Hoodism for various reasons, including a moral concern with restoring justice. Study 2 results suggested that managerial (...) Robin Hoodism is more likely to occur when the justice violations involve distributive and interpersonal justice rather than procedural justice violations. In studies 3 and 4, when moral identity was low, both distributive and interpersonal justice violations showed similar relationships to managerial Robin Hoodism. However, when moral identity was high, interpersonal justice violations showed a strong relationship to managerial Robin Hoodism regardless of the level of distributive justice. (shrink)

The widespread critical evidence surrounding executive compensation of listed corporations has boosted shareholder activism in recent decades. The say-on-pay (SOP) mechanism—a vote in which shareholders express their (dis)agreement with executive pay designs—is one of the corporate governance mechanisms that has led to this activism among listed firms. Merging agency and socioemotional wealth (SEW) arguments, this paper analyzes how effective SOP voting results are among listed family firms in terms of CEO compensation efficiency and equity. Using a sample of (...) UK listed firms from 2011 to 2018, our results show that SOP effectiveness is positively influenced by family ownership and is strongly moderated by family involvement in management and in governance as well as by family generation. Our findings stress the strong family effect and the ethical perceptions of family shareholders on SOP voting, showing how family participation in the firm encourages fairer and more aligned CEO compensation packages. SOP institutional and practical implications oriented to preserve shareholder value and family wealth are finally outlined. (shrink)

I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve.

The Chinese government capped executive compensation in state-owned enterprises (SOEs) to address income inequality and promote a more equitable distribution of wealth. This study investigates whether regulating top executives' pay alters their motivation for corporate green innovation (GI) initiatives. Using data from 2006 to 2018 for Chinese-listed SOEs, the regression analysis and difference-in-difference methods revealed that government restrictions on executive compensation negatively affect GI. Furthermore, the types of SOE results show that the negative effect of pay restrictions on (...) GI exists only in local SOEs, as opposed to central SOEs. Moreover, high managerial shareholding positively moderates this negative effect, demonstrating that the adverse effects of compensation restrictions are mitigated by the convergence of interests between managers and stakeholders. These findings are robust to instrumental variables and other robustness tests. This study provides policy recommendations for the government to boost its assistance in GI and establish new environment-related incentives that motivate managers to promote GI and inspire enterprises to deploy sustainable environmental initiatives. (shrink)

This paper investigates under what conditions a good corporate social responsibility (CSR) can compensate for a relatively poor corporate ability (CA) (quality), and vice versa. The authors conducted an experiment among business administration students, in which information about a financial services company’s CA and CSR was provided. Participants indicated their preferences for the company’s products, stocks, and jobs. The results show that for stock and job preferences, a poor CA can be compensated by a good CSR. For product preferences, a (...) poor CA could not be compensated by a good CSR, at least when people thought that CA is personally relevant to them. Furthermore, a poor CSR could be compensated by a good CA for product, stocks, and job preferences. (shrink)

Behaviorism is consistent with the assumptions of perfect competition, with the homo economicus model, and with a form of ethics that enshrines market-based notions of utility, justice, and rights and encourages rational maximizing. Economics and business courses foster this deficient form of ethics, assuming an overriding desire for money, which, according to MacIntyre and Aristotle, crowds out the associative virtues. These beliefs, often associated with Taylor and Friedman, lead to such practices as incentive compensation, which would be effective only (...) if employees were homines economici and thus rational in the sense of knowing how to satisfy whatever desires they have. Against Davidson’s view that psychology cannot be a natural science, Aristotle believes that there can be a teleological, if not exact, science of behavior. Aristotle believes that emotions and objectives may be rational or irrational. But rationality—phronesis, practical wisdom—is not a matter of applying algorithms. Doris questions whether character generates the first premises of an agent’s practical syllogisms, while Haidt has argued that we often act on emotions rather than on the basis of the reasons that we claim motivate us. Aristotle agrees that many people are not virtuous and that weakness of the will is a common occurrence, and he agrees that emotion drives actions. But if you are virtuous, your emotions and desires support your rationality. Aristotle gives us reason to reject the notion that people are homines economici and to treat them as rational deliberators, in part by creating an appropriate culture. The claim that it is in the nature of human beings to deliberate rationally is in part aspirational, but also in part scientific—in Aristotle’s modest sense. (shrink)

This article develops and applies a knowledge-based framework for understanding and interpreting executive compensation under the rubric of ethical consideration. This framework classifies six major ethical considerations that reflect issues in compensation design. We emphasize that these six ethical considerations are influenced by liberty and equality concepts. This framework helps to highlight areas where executive compensation has not been well spelled out.

In their article ‘Ethical and technical challenges in compensating for harm due to solar radiation management geoengineering,’ Svoboda and Irvine argue that setting up a just system of compensation...

Contemporary discussions of the relationship between negligence liability and the provision of services by both public and private organizations frequently suggest the emergence of a ‘compensation culture’. Despite empirical evidence that compensation culture claims are somewhat inflated, an anxiety persists that risks of tortious liability may still undermine the implementation of public policy. Concerns about the potential negative effects of liability on public administration frame the problem in various ways. First, there is an anxiety that public authorities may (...) overreact to liability risks by becoming excessively risk averse. Secondly, there is a fear that compensation claiming will divert financial resources away from service delivery and towards the payment of insurance premiums and compensation awards. Thirdly, there is the fear that insurance companies will, as ‘risk bullies’, curtail public service activities. And, finally, there is the suggestion that risk management, including legal risk management, is becoming the dominant mode of government decision-making to the exclusion of professional judgement. This article addresses these concerns through a set of empirical case studies about the management of liability risks associated with road maintenance services. Although our findings suggest that public authorities respond to liability risks in a variety of ways, we found only limited evidence of the above concerns. In general terms, it was a case of public authorities being risk aware and responsive as opposed to risk averse. (shrink)

Traditional memory strategy training interventions improve older adults’ performance on tests of episodic memory, but have limited transfer to episodic memory tasks, let alone to everyday memory. We argue that an alternative approach is needed to assist older adults to compensate for age-related cognitive declines and to maintain functional capacity in their own natural ecologies. We outline a set of principles regarding how interventions can successfully train older adults to increase successful goal pursuit to reduce risks of everyday memory failures. (...) We argue that training individuals to use metacognitive self-regulatory strategies to proactively manage formulation and pursuit of daily goals can compensate for age-related cognitive changes and increase the likelihood of goal attainment. We then describe an intervention approach that instantiates these principles in a multi-modal intervention that is unique in its three-phase approach: individualized assessment of an individual’s current approaches to self-regulation; training memory strategies, self-management skills, and new habits of mind in a group training context; and a behavioral shaping period in which individuals receive coaching and feedback on their efforts to use trained procedures to improve everyday cognition. A recently completed study conducted an initial test of the intervention, with highly encouraging results. We advocate further efforts to replicate, extend, and fine-tune this type of intervention. The ultimate goal is to be able to deliver the intervention in a way that increases its potential reach, including to subpopulations of older adults at risk for everyday cognitive impairments. (shrink)

The role of board secretaries is a unique institutional feature in China. Individuals in this senior executive role are responsible for coordinating information disclosure. We study the impact of board secretaries on management earnings forecasts and find that their legal expertise, accounting expertise and foreign experience help improve management earnings forecast quality. The quality of forecasts, as indicated by their occurrence, frequency, precision and accuracy, is also positively associated with the role duality and equity holdings of board secretaries (...) and negatively associated with their political connection. The quality of forecasts is found to increase the compensation of board secretaries. Finally, we show that the equity holding of board secretaries reduces litigation risks and increases corporate philanthropic giving. (shrink)

With the widespread application of electric vehicles, the study of the power lithium-ion battery has broad prospects and great academic significance. The state of charge is one of the key parts in battery management system, which is used to provide guarantee for the safe and efficient operation of LIB. To obtain the reliable SOC estimation result under the influence of simple model and measurement noise, a novel estimation method with adaptive feedback compensator is presented in this paper. The simplified (...) dynamic external electrical characteristic of LIB is represented by the one-order Thevenin equivalent circuit model and then the ECM parameters are identified by the forgetting factor recursive least squares method. Fully taking into account the feedback effect of terminal voltage innovation, the combination of adaptive extended Kalman filter and innovation vector-based proportional-integral-derivative feedback is proposed to estimate the LIB SOC. The common single proportional feedback of Kalman filter is replaced by the innovation vector-based PID feedback, which means that the multiple prior terminal voltage innovation is used in the measurement correction step of KF. The results reveal that the AEKF with PID feedback compensation strategy can improve the SOC estimation performance compared with the common AEKF, and it reveals good robust capability and rapid convergence speed for initial SOC errors. The maximum absolute error and average absolute error for SOC estimation are close to 4% and 2.6%, respectively. (shrink)

In lieu of an abstract, here is a brief excerpt of the content:Managed Health Care: New Ethical Issues for All*Martina Darragh (bio) and Pat Milmoe McCarrick (bio)Changes in the way that health care is perceived, delivered, and financed have occurred rapidly in a relatively short time span. The 50-year period since World War II encompasses enormous growth in medical technology, soaring health care costs, and significant fragmentation of the two-party patient- physician relationship. This relationship first grew to include the third-party (...) payer, the health insurance industry, and now “with great speed and relatively little public awareness, a significant change has occurred in the way some decisions are made about a patient’s medical care” (III, Institute of Medicine 1989).The new means of providing health care bring an increasing number of parties into clinical decision-making processes. With this change, ethical issues that once concerned only health care professionals, the physician or the nurse, have expanded to include the patient and the groups who “manage” care—e.g., health maintenance organizations (HMOs), preferred provider organizations (PPOs), point of service groups (POSs), independent practice associations (IPAs), insurance reviewers, hospital administrators, institutional managers, and, the most recent players, purchasers of group health care who base their decisions on competitive pricing.The term “managed care” refers to a variety of continually adapting and developing arrangements that involve four groups. These groups, which have been labeled by the world of business, not health, are the “consumer” (once the patient), the “provider” (the physician and other health care professionals), the “insurer” (the reimburser for any care), and the “purchaser of care” or the primary buyer of health services (the large employer organization). Capitation is a common way to pay for health services in managed care systems. A certain dollar amount is negotiated for health services for a specified number of patients whether the care is delivered or not; the provider shares with the [End Page 189] insurer any financial risk for the actual cost of care (III, Centers for Disease Control 1995).When the Clinton administration’s health care reform movement failed to gain support in the U.S. Congress, the use of managed care to control rising health care costs accelerated. The literature on managed care and its effect on the patient-physician relationship reflects this shift. During the era of health care reform, “debate centered on how managed care could control costs, on the use of technology and patient satisfaction, [and] on access and barriers to care” (IV, Emanuel and Dubler 1995). When managed care organizations began contracting with physicians to provide health care services subject to the plans’ provisions, these plans became agents in clinical decision making on a wide-spread basis. HMO enrollment grew to 51 million persons by 1994 (III, Centers for Disease Control 1995). This “corporatization” of health care has sparked a plethora of articles about the effects of the marketplace on the physician’s ability to do what is best for the patient, and on the patient’s ability to trust the physician to do so.Many authors make it clear that managed care itself is not the problem, but rather the development of for-profit managed care plans by “corporate conglomerates with billions of dollars in assets that compensate their executives as grandly as basketball players” (V, Kassirer 1995) “in a marketplace that is largely unregulated” (I, Zoloth-Dorfman and Rubin 1995). “Some, mostly older plans that were created when cost containment was an unexpected benefit rather than their central purpose, deliver high-quality care economically. Unfortunately, others cut costs by recruiting the healthiest patients, excluding the sickest, rationing care by making it inconvenient to obtain, and denying care by a variety of mechanisms” (V, Kassirer 1995).These cost-containment features now play an intimate role in clinical practice. When a managed care plan contracts with a physician, the doctor becomes a “double agent” with contractual obligations to the plan to provide a preset amount of services and professional responsibilities to each patient to authorize necessary treatment (V, Angell 1993). This duality can undermine the physician’s fiduciary responsibility to the patient wherein the physician “has power over the affairs of [the patient]...and is required by law to act on that person’s... (shrink)

Discussions of socioeconomic liability and compensation must necessarily start from an understanding of the socioeconomic, legal, and scientific basis for identifying, assessing, managing, and apportioning blame for hazards related to innovations. Public discussions about the nature of the liability challenge related to genetically modified (GM) crops and other modified organisms have focused less on direct, traditional health, public safety, technical, or environmental failures (e.g., innovations that generate hazards directly for users or indirectly to bystanders) and more on socioeconomic concerns, (...) such as comingled product that offends product quality standards. This article examines the theoretical and legal underpinnings of the current risk analysis framework used in most Organization for Economic Cooperation and Development countries and uses it to assess two areas of significant controversy—the release of herbicide-tolerant canola and flax varieties in Western Canada. The article offers lessons for the management of liabilities arising from the introduction of GM crops. (shrink)

The current study examines the relationship between financialization, managers’ incentives, and the enterprise’s innovation. Based on the principal-agent and incentive theories, this study proposes a research model with two management incentives as moderating variables between financialization and the enterprise’s innovation. First, we analyze the direct relationship between financialization and the enterprise’s innovation. Second, we examine the moderating effect of managers’ equity incentive and compensation incentives on the relationship between entity financialization and the enterprise’s innovation in high-tech/non-high-tech enterprises and (...) state-owned and non-state-owned enterprises. This study covers the most recent updated data from both A-share listed companies in the Shenzhen and Shanghai stock exchange in China from 2009 to 2019. This study’s finding indicates a significant negative impact of entity financialization and the enterprise’s innovation. It means that the entity financial has a significant “crowding-out” effect on the enterprise’s innovation. This study also confirms that management incentives cannot effectively suppress a “crowding-out” impact of entity financialization on firm innovation because of the principal-agent severe problem in financialization. Finally, considering the heterogeneities of property rights and degrees of dependence on the enterprise’s innovation, a “crowding-out” effect of entity financialization on the enterprise’s innovation is more significant in high-tech and state-owned enterprises. Managers’ equity incentive significantly affects the enterprise’s innovation in high-tech enterprises, while the managers’ compensation incentive affects the enterprise’s innovation in state-owned enterprises. Our study could help the enterprise to improve the company manager’s incentive and provide the optimal assets allocation to improve the enterprise’s innovation ability. Lastly, this study provides significant policies and recommendations for the public sector high-tech enterprise and private sector high-tech enterprises. Moreover, policies and recommendations are fruitful for the public sector non-high-tech enterprise and private sector non-high-tech enterprise. (shrink)

This study analyses to what extend and under what circumstances layoffs are accepted in Germany. Principles of distributive justice and rules of procedural justice form the theoretical framework of the analysis. Based on this, hypotheses are generated, which are tested empirically in a telephone survey conducted between East and West Germans in 2004 (n = 3036). The empirical analysis accounts for the different points of views of implicated stakeholders and impartial spectators. Key findings are: (1) The management of a (...) company can increase the acceptance of layoffs if the employees get some participation rights. (2) For impartial spectators generous compensation for those made redundant leads to a higher degree of perceived fairness. But job alliances are not even preferred to layoffs without measures to soften the blow of job loss. (3) Implicated stakeholders accept job alliances and perceive wage cuts as more fair than layoffs. However, compensation does not have the expected impact. (shrink)

This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation—despite its fixed nature—is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management (...) efforts at the expense of monitoring on behalf of investors. Supporting our cronyism argument, we find evidence that the gap between chairman and CEO compensation is less at firms where the chairman had previously served in the executive management team. The close ties between the chairman and CEO compensation add to the understanding of the relative success of the managerial power theory versus the agency theory in explaining CEO compensation. (shrink)