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

Knut J. Ims, Lars Jacob Tynen Pedersen, & Laszlo Zsolnai 'How Economic Incentives Destroy Social, Ecological and Existential Values: The Case of Executive Compensation.' Journal of Business Ethics , 2014, vol.123, no. 2, pp. 353-360

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 ecological 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 type of values. We will in particular investigate how it may influence the manager’s ethical reflection and behavior or lack thereof.

Executive Compensation JBE.pdf