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The social context of compensation design: Social norms and the impact of equity incentives
Author(s) -
Zolotoy Leon,
O’Sullivan Don,
Martin Geoffrey P.
Publication year - 2018
Publication title -
human resource management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.888
H-Index - 94
eISSN - 1099-050X
pISSN - 0090-4848
DOI - 10.1002/hrm.21897
Subject(s) - incentive , discretion , equity (law) , equity theory , public economics , value (mathematics) , business , context (archaeology) , economics , microeconomics , political science , law , paleontology , machine learning , computer science , biology , economic justice
Drawing on arguments from institutional theory, this study examines how social norms—specifically, local religious social norms—affect the motivational impact of equity‐based incentives. We test our model using longitudinal data on local religious norms, CEO equity incentives, and firm value. Consistent with our theoretical predictions, we find that local religious social norms attenuate the impact of CEO option incentives upon firm value. Furthermore, we find that the attenuating impact of local religious social norms increases with managerial discretion. These findings provide valuable insight for human resource professionals aiming to design compensation contracts for employees that are aligned with firm goals. Our findings also contribute to research on the motivational effect of equity incentives by demonstrating the importance of considering the social context in which executives are embedded.