The Ethical Dimension of Equity Incentives: A Behavioral Agency Examination of Executive Compensation and Pension Funding

Geoffrey P. Martin, Robert M. Wiseman, Luis Gomez-Mejia

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We draw on the behavioral agency model to explore the ethical consequences of CEO equity incentives. We argue that CEOs are more concerned with funding pension plans when they have more to gain from their stock options yet will increasingly underfund employee pension funds as their current option wealth increases. Our findings reveal that both effects hold when the CEO has greater power (also occupying board chair) over firm decision making. Our study suggests that there is an ethical dimension to equity incentives, given they are intended to align CEO interests with shareholders, yet potentially incentivize CEO behaviors with adverse consequences for employees. Insights from our findings provide boards and regulators with behavioral levers to protect employee well-being in the context of pension funding.

Original languageEnglish (US)
Pages (from-to)595-610
Number of pages16
JournalJournal of Business Ethics
Volume166
Issue number3
DOIs
StatePublished - Oct 1 2020

Keywords

  • Behavioral agency
  • Ethical decision making
  • Executive compensation
  • Incentives
  • Pension funding
  • Stakeholder agency

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Arts and Humanities (miscellaneous)
  • Economics and Econometrics
  • Law

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