Exeter research on executive pay informs major United Nations report on business and human rights
New research revealing how executive pay can put workers’ rights at risk will be presented to the UN General Assembly in New York later this month.
A research team comprising Dr Monika Tarsalewska from the University of Exeter Business School, Agnieszka Trzeciakiewicz from the University of York and Justin Chircop from Lancaster University, found that executive pay structures that reward risk-taking are associated with higher levels of workplace misconduct, including violations of labour laws and workplace health and safety regulations.
Citing these findings, a new report from the United Nations Working Group on Business and Human Rights warns that current executive compensation structures can create incentives that undermine workers’ rights and calls for companies to link executive pay more closely to human rights performance.
Dr Monika Tarsalewska said: “When senior executive pay directly correlates to stock market price it can encourage the type of corporate risk-taking that is designed to boost profits but which comes at the expense of employees’ working rights and wellbeing.
“For our research to be shaping an international policy debate is deeply gratifying. The report that is being distributed to all UN Member states presents a real possibility that our research will influence rethinking executive pay incentives and their implications for employees around the world.”
The research evaluated 1,916 publicly listed United States companies between the year 2000 and 2018. Researchers matched detailed information on executive compensation with regulatory records of workplace violations.
A one-standard-deviation increase in chief executive risk-taking incentives was associated with a 6.7% increase in workplace violations. It also led to a 5.5% increase in the total value of financial penalties.
The study identifies two main ways these incentives translate into negative outcomes for staff. Companies reduced spending associated with employee safety, and increased pressure on staff through heavier workloads. Heavier workloads occurred when companies cut staff, forcing remaining employees to absorb extra work, or increased required production per worker.
To test whether executive pay caused these violations, the research analysed a change in United States accounting rules that led companies to reduce stock options. Following this change, companies that cut stock-option incentives experienced a drop in both the frequency and severity of workplace safety violations.
The United Nations report Corporate Governance, Business and Human Rights cites the findings in paragraph 65 of its section on executive remuneration. Drawing on this evidence, the United Nations Working Group notes that executive pay tied to financial performance incentivises behaviour that increases human rights risks.
The report recommends that companies expressly link executive remuneration and incentives to human rights performance indicators. It directs these recommendations at companies, corporate boards, states and financial investors.
The researchers will present their findings to the United Nations General Assembly in New York in October, a second presentation and policy discussion will follow in Geneva in November.
