The effect of incentive based directors' remuneration on ethical decision making in organisations

[摘要] ENGLISH ABSTRACT:The historical development of the role of directors in public listed companies containsinherent tensions by reference to the fiduciary responsibility of directors and themethod in which directors are remunerated. The nature of incentive basedremuneration is such that it will compel directors, in certain circumstances, to weightheir interests against those towards whom they owe a duty of care and a moralresponsibility to act with prudence and temperance.The modem day corporate environment is complex and calls for directors with strongethical views. This assignment endeavours to identify some of the complexities thatcontribute towards directors finding it difficult to stay on the ethical straight andnarrow and attempts to weigh the effect of those factors against the effect ofincentive remuneration, both as detractors from ethical behaviour. Both theshareholder supremacy business model and the stakeholder approach are analysed toidentify those factors present in each that may add to the ethical complexity thatdirectors have to deal with. The advent of the stakeholder approach in particular, addsan enormous amount of complexity.The case studies deal with two South African financial services companies that haveboth ceased trading as a consequence of unethical behaviour. The incentiveremuneration models of both companies have been found to have played a majorcontributing role in the decision making processes in the companies, and havecontributed to the demise of these organisations. Lessons are taken from the case studies and applied against the backdrop of thevarious principles of ethical behaviour namely rights, utility, justice and the ethics ofresponsibility. The finding of this study is that there is a role for incentiveremuneration of directors, provided that the ethical pitfalls that this causes arerecognised and steps taken to address them. Some of these steps are identified.

[发布机构] Stellenbosch University