Tags: Pay
The IBE’s Associate Director, Professor Chris Cowton, discusses a new question on CEO pay that was included in our recent public attitudes survey.
Having been running for two decades, a large part of the value of the IBE’s annual ‘Attitudes of the British Public to Business Ethics’ survey is its longevity and continuity, allowing us to compare findings from one year to the next and to identify longer-term trends.
However, we also like to keep it fresh. So, for example, in 2021, instead of just asking the public what they think of the behaviour of business, we introduced a comparative element to the first question by asking respondents to rate politicians, media and charities too. And we have kept the second question’s list of issues that most need addressing up to date by occasionally adding a new issue (this year, AI) or tweaking the wording to reflect changes in usage.
This year’s major innovation was to add a third question, to help us explore the public’s views of one of the ethical issues in greater depth. We focused on executive pay, which has been consistently highly ranked in previous surveys and was selected by more than a quarter (27%) of this year’s respondents, making it the third highest-ranked of the issues that the public would like to see addressed. Since it is top bosses’ pay that tends to grab the headlines, and given some contemporary debates, we asked:
How important do you think it is for a chief executive's pay to reflect the ethical performance of their company?
The British public’s response was as follows:
|
Very important |
36% |
|
Important |
32% |
|
Fairly important |
17% |
|
Slightly important |
5% |
|
Not important |
10% |
Thus, over two-thirds of the public (68%) think that it is very important/important for a chief executive's pay to reflect the ethical performance of their company. There were some differences based on gender and age. For example, the ‘not important’ response was selected by more men than women – even though more men selected executive pay as a key ethical issue under question 2 – and by more people aged 55+. Overall, though, the range of views tended to be broadly similar across major demographic groups.
Now for another question: what would you have answered? If it doesn’t happen already, would you want your chief executive’s remuneration to reflect organisational ethical performance?
If yes, that still leaves the question of how the ethical portion of the chief executive’s pay package might be tied to ethical performance. There are at least three key questions and associated challenges.
- How is the ‘ethical performance’ of the organisation to be defined and measured, and how might we come to an agreed view on this?
In any type of performance assessment, there is a tension between objectivity (reliant on measures) and completeness (which recognises that measures can be very partial). At least in the case of large companies, the rise of ESG data providers means that there are many more possible ‘indicators’ available, but the tension between objectivity and completeness is likely to be particularly keenly felt in the case of ethical performance. - How significant a proportion of the package should ethical performance account for?
If it’s a large proportion, it might detract from the key business elements that ensure the organisation’s survival. Put more bluntly, nobody wants to see ethical but incompetent performance rewarded. Yet, if ethical performance is only a small proportion of the pay package, will its effect on the chief executive’s behaviour be negligible, especially if there is a tension between short-term financial results and longer-term outcomes? - Should there be a threshold level of ethical performance, below which the bonus element isn’t triggered?
Probably: but one of the criticisms of bonuses in this sort of area (e.g. carbon emissions) is that the targets tend to be too easy and almost inevitably met. Critics claim that many of these schemes are about finding ways to pay chief executives extra money rather than about incentivising and rewarding good behaviour.
What do you think?
One final thought: if it makes sense for your CEO’s pay to be related to the ethical performance of the organisation, what about the idea that your own pay should reflect your ethical performance? Or do you not need any incentive to do the right thing?
And if you don’t, why should the CEO?
Author
Professor Chris Cowton
Associate
Chris served the IBE as part-time Associate Director from 2019 to 2023, having previously been a Trustee. He continues to contribute to our work from time to time as an Associate.
Chris originally joined the IBE staff following a long career of leadership, research and teaching in the higher education sector. He is Emeritus Professor at the University of Huddersfield, where he served as Professor of Accounting (1996-2016), Professor of Financial Ethics (2016-2019) and Dean of the Business School (2008-2016). He moved to Huddersfield after ten years lecturing at the University of Oxford. He has also been a Visiting Professor at Leeds University’s Inter-Disciplinary Ethics Applied Centre, the University of Bergamo (Italy) and the University of the Basque Country, Bilbao (Spain).
He is internationally recognised for his contributions to business ethics, especially his pioneering work on financial ethics. In 2013 he was awarded the University of Huddersfield’s first DLitt (Doctor of Letters, a higher doctorate) in recognition of his contribution to the advancement of knowledge in business and financial ethics.
He is the author of more than 70 journal papers, has edited three books and has written many book chapters and other publications. He served 10-year terms as Editor of the journal Business Ethics: A European Review (2004-2013) and as a member of the Ethics Standards Committee of the Institute of Chartered Accountants in England and Wales (2009-2018). He continues to write extensively and to speak to both academic and practitioner audiences.