IBCC Assignment 2 – 2000 words

Question 

CEO forfeits sustainability to compensate for good performance. Discuss.

Guidelines:

Important questions are being raised about executive compensation as it has become a symbol of inequality and concentration of wealth over the last decades. Particularly following the financial crisis of 2008.  Many studies (Murphy, 1985; Main et al., 1996; Wan et al., 2000; Stathopoulos et al., 2004; Doucouliagos et al., 2007; Gregg et al., 2012) have established the relationship between directors’ remuneration and performance. Afrifa and Adesina (2017) also confirm the existence of directors’ remuneration level, which maximises firm performance.

Sustainability on the other hand has been argued to be one of the defining themes of the 21st century. While it is not clear how MNEs are responding to COP21 and the Paris Agreement (operational changes, accounting and disclosure of carbon emissions, etc.), linking executive compensation to corporate sustainability performance could pave way for new thinking about sustainability.

Considering the established relationship between CEO compensation and firm performance, to what extent do you agree that CEO forfeits sustainability to compensate for good performance, which leads to more remuneration?

References

Afrifa, G. and Adesina, O. (2017) How does Directors remuneration affect SMEs’ performance? Review of Accounting and Finance, 17 (2). (In Press)