Executive compensation and employee remuneration: The flexible principles of justice in pay

Summary

Magnan and Martin's (2019) research paper, "Executive compensation and employee remuneration: The flexible principles of justice in pay," delves into the ethical considerations and underlying principles that justify compensation practices for both executives and lower-ranking employees within business firms. The authors investigate how companies conduct pay benchmarking, the impact of employee engagement, fidelity, and loyalty on pay practices, and the controversial practice of "both-ends-dipping," which involves receiving both ex ante and ex post benefits for the same work. Their analysis is rooted in the concept of distributive justice, a theory focused on the fair allocation of resources and rewards within an organization and society. This perspective highlights concerns about the justification of significant pay disparities between executives and average workers, as well as the broader societal implications of such inequalities. The methodology employed in the study includes a content analysis of remuneration committee reports from Financial Times Stock Exchange 100 (FTSE-100) companies, complemented by interviews with key decision-makers involved in executive pay determination. This combined approach allowed the researchers to examine the stated principles and actual practices surrounding compensation. The findings reveal a critical observation: either different or incoherent principles are applied to justify the pay of executives versus employees, or the same principles are applied in a disparate manner. Crucially, these differences and inconsistencies consistently tend to benefit executives and/or disadvantage employees. The paper's analysis also uncovers a persistent concern regarding the perceived unfairness of the widening gap between executive rewards and other stakeholder outcomes, aligning with distributive justice theory and broader societal worries about income inequality. The authors conclude by questioning whether there is a valid reason to apply different ethical frameworks to executive pay compared to employee pay, suggesting that the principles justifying current executive compensation might be instrumentalized to serve other ends. The paper also implicitly links these issues to employee engagement, highlighting its role as a critical lens for assessing the outcomes of corporate compensation.