How Economic Incentives May Destroy Social, Ecological and Existential Values: The Case of Executive Compensation

Ims, Knut J.; Pedersen, Lars Jacob Tynes; Zsolnai, László

doi:10.1007/s10551-013-1844-6

Cited by 36 publications

(25 citation statements)

References 25 publications

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“…This, in turn, may have the effect of "crowding out" ethics-based decision-making. Another closely related risk is that, by emphasising (and even rewarding) goal attainment in terms of scoring on measurable criteria, ESG ratings might distract attention away from ethical dimensions (Ims et al 2014;Moore and Gino 2015). Work in other domains has documented how performance measurement may even lead to unethical behaviour as actors find ways of manipulating evaluations (e.g.…”

Section: Discussionmentioning

confidence: 99%

How Do Companies Respond to Environmental, Social and Governance (ESG) ratings? Evidence from Italy

2020

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While a growing number of firms are being evaluated on environment, social and governance (ESG) criteria by sustainability rating agencies (SRAs), comparatively little is known about companies' responses. Drawing on semi-structured interviews with companies operating in Italy, the present paper seeks to narrow this gap in current understanding by examining how firms react to ESG ratings, and the factors influencing their response. Unique to the literature, we show that firms may react very differently to being rated, with our analysis yielding a fourfold typology of corporate responses. The typology captures conformity and resistance to ratings across two dimensions of firm behaviour. We furthermore show that corporate responses depend on managers' beliefs regarding the material benefits of adjusting to and scoring well on ESG ratings and their alignment with corporate strategy. In doing so, we challenge the idea that organisational ratings homogenise organisations and draw attention to the agency underlying corporate responses. Our findings also contribute to debates about the impact of ESG ratings, calling into question claims about their positive influence on companies' sustainability performance. We conclude by discussing the wider empirical, theoretical and ethical implications of our paper.

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Section: Discussionmentioning

confidence: 99%

How Do Companies Respond to Environmental, Social and Governance (ESG) ratings? Evidence from Italy

2020

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“…By taking an environmental stewardship perspective, this study points out that environment friendly firms are likely to rely less on incentive-based plans to pay their CEO as these executives are likely to have their interests already aligned with the environmental goals because they have a moral duty to safeguard the natural environment and receive intrinsic rewards from doing this. In such a context, financial rewards might not only be ineffective (Jobome, 2006), but also have an adverse effect on CEOs intrinsic commitment (Frey and Jegen, 2001;Ben-Ner et al, 2010;Ims et al, 2014).…”

Section: Discussionmentioning

confidence: 99%

“…Frey and Jegen, 2001;Fehr and Falk, 2002;Bénabou and Tirole 2003;Cuevas-Rodríguez et al, 2012;Ims et al, 2014). If CEOs serve as stewards, there is less of a need to use explicit incentives to align their interest with those of the stakeholders, as their interests are already focused on organizational, rather than personal aims.…”

Section: Hypotheses' Developmentmentioning

confidence: 99%

“…Explicit incentives may also decrease the individual's willingness to allocate time and efforts towards social activities, as they reduce the sense of control s/he has over his (her) actions (Berrone and Gomez Meja, 2009b). Thus, incentive-based compensation can weaken individual's intrinsic incentives and produce unintended negative consequences (Ims et al, 2014). According to this perspective, socially concerned firms have been found to rely more on lower-powered incentive contracts, such as salaries, than non-socially concerned firms (e.g.…”

Section: Hypotheses' Developmentmentioning

confidence: 99%

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Green or Greed? An Alternative Look at CEO Compensation and Corporate Environmental Commitment

et al. 2015

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This study relies on environmental stewardship, a stakeholder enlarged view of stewardship theory, and institutional theory to analyze the relationship between CEO compensation and firms' environmental commitment in a worldwide sample of 520 large listed firms. Our 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. Our 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.Our 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.

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“…Pogge 1992). Second, there is a risk that enforcing responsible practices may crowd out any genuine moral commitment on the part of the actor, and thus reduce the act to pure compliance or opportunism (Ims et al 2013). This may transform the vibrant nature of ethical reflection and dialogue into a more narrow "quasi-legalistic" system of rules and requirements.…”

Section: Part Iii: From Compliance and Enforcement To Autonomy And Rementioning

confidence: 99%

Rethinking business ethics in an age of crisis

Ims¹,

Pedersen²

2015

Business and the Greater Good

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How Economic Incentives May Destroy Social, Ecological and Existential Values: The Case of Executive Compensation

Cited by 36 publications

References 25 publications

How Do Companies Respond to Environmental, Social and Governance (ESG) ratings? Evidence from Italy

How Do Companies Respond to Environmental, Social and Governance (ESG) ratings? Evidence from Italy

Green or Greed? An Alternative Look at CEO Compensation and Corporate Environmental Commitment

Rethinking business ethics in an age of crisis

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