Beyond financial performance: Is there something missing in executive compensation schemes?

Exorbitant levels of executive pay have been the subject of intense public debate and have attracted the interest of researchers and the business press alike. Boards and executives have been criticized as the level of executive compensation has risen dramatically when compared to the pay of the average worker and to the actual growth of companies. Recently, this attention has been renewed due to the notorious corporate scandals in the USA such as those of Enron, Worldcom, Arthur Andersen, Tyco International and Adelphia. These business failures affected investors and pension holders - with estimated losses of US pension and 401(k) plans in the neighborhood of $7 trillion (Siebert, 2002) - but also had important social costs: thousands of workers have lost their jobs and they and their families are suffering the consequences. This situation has led scholars to call into question the efficacy of executive pay and brings to the forefront the issue of business ethics and corporate social responsibility in the context of managerial compensation.