Doctoral student writing

Managerial Incentives and Corporate Ethics

  • School: Nottingham Business School
  • Starting: 2018
  • Funding: UK student / EU student (non-UK) / International student (non-EU) / Self-funded


Since the seminal work of Jensen and Meckling (1976) on the separation of ownership and control and the associated agency costs, a significant volume of research has focused on corporate governance practices that can potentially align the interests of managers (agents) with those of shareholders (principals) (Shleifer and Vishny, 1997). One of the most important, and often controversial, corporate governance mechanisms used to mitigate agency costs is the structure of executive compensation contracts. Indeed, there is empirical evidence that linking the wealth of managers with that of shareholders via the provision of incentive compensation can reduce information asymmetry (Bernardo et al., 2009), prevent value-destroying managerial actions (Edmans et al., 2009), motivate innovation (Manso 2011), exert managerial effort (Dodonova and Khoroshilov, 2014) and improve the quality of investment decisions (Datta et al., 2011; Minnick et al., 2011; Croci and Petmezas, 2015) increasing firm value and benefiting shareholders.

On the other hand, unsuitable executive compensation structures can destroy firm value. For instance, it is known that high proportions of cash compensation can lead to managerial entrenchment and risk aversion (Berger et al., 1997; Duffhues and Kabir, 2008). Equity-based compensation does not always create value either. Its effectiveness may depend on a number of firm characteristics (Kuo et al., 2013; Balafas and Florackis, 2014) and under certain circumstances it can also result in higher risk aversion (Lambert et al., 1991, Brisley, 2006). In addition, it has been documented that executive compensation rises following investment decisions that increase firm size irrespectively of whether these investments create value or not (Schmidt and Fowler, 1990; Kroll et al.,1990; Bliss and Rosen, 2001, Harford and Li, 2007). Therefore, powerful managers are likely to pursue size-increasing investments (Grinstein and Hribar, 2004) and rig their compensation contracts for their own benefit (Duffhues and Kabir, 2008; Morse et al., 2011).

However, the above discussion focuses on the interests of shareholders only ignoring those of other groups of stakeholders (e.g. employees, customers, suppliers, local communities, environmental groups, government). In the modern societies profit maximisation may not be the only corporate objective. Quite a few companies often recognise the need to act in a socially responsible and ethical way following more altruistic strategies (Watson and Head, 2016). In addition, an increasing number of studies highlight the importance of Corporate Social Responsibility (CSR) in corporate governance and the necessity to take stakeholders’ interests into account in strategic corporate decisions (Porter and Kramar, 2006; Arora and Dharwadkar, 2011; Young and Thyil, 2014). Given the trade-off between financial performance and social-environmental strategies (Walley and Whitehead, 1994; Jaffe et al., 1995) managers may need to be provided with appropriate compensation incentives in order to pursue non-financial goals (Gabel and Sinclair-Desgagné, 1992). Nevertheless, very little research has been conducted in this area so far. Mahoney and Thorne (2005, 2006) argue that long-term compensation incentives can align the interests of executives with those of the society strengthening CSR. Similarly, it is found that the provision of CSR-related incentives can lead to greater levels of social performance (Hong et al.,2016) while higher proportions of cash-based compensation is negatively associated with CSR (Karim et al., 2017).Regarding the impact of socially and environmentally responsible behaviour on managerial compensation, the evidence is mixed: some studies document a positive relation between environmental factors and CEO wealth (Campbell et al., 2007, Berrone and Gomez-Mejia, 2009) while others advocate an adverse impact of CSR on CEO compensation (Cai et al., 2011).

The main problem with these studies though is the way managerial compensation and the associated incentives are measured. Simplified measures of incentive compensation such as the value and volume of new options and stock grants, scaled and unscaled numbers of options and stock held and the sum of these are only noisy proxies and cannot properly capture incentives provided to managers via their compensation contracts (Core and Guay 2002, Coles et al., 2006). Therefore, this project aims to examine the structure of executive compensation contracts that can maximise social and environmental benefits using appropriate measures of managerial incentives. In doing so, the diverse interests of the different groups of stakeholders should be taken into account as “one size fits all” approach is unlikely to be a suitable solution to such a complicated issue.


Arora, P., and Dharwadkar, R., 2011. ‘Corporate Governance and Corporate Social Responsibility (CSR): The Moderating Roles of Attained Discrepancy and Organization Slack’, Corporate Governance: An International Review, 19(2), 136-152.
Balafas, N., and Florackis, C., 2014. ‘CEO Compensation and Future Shareholder Returns: Evidence from the London Stock Exchange’, Journal of Empirical Finance, 27(1), 97-115.
Berger, P.G., Ofek, E., and Yermack, D.L, 1997. ‘Managerial Entrenchment and Capital Structure Decisions’, Journal of Finance, 52(4), 1411-1438.
Bernardo, A.E., Cai, H., and Luo, J., 2009. ‘Motivating Entrepreneurial Activity in a Firm’, Review of Financial Studies, 22(3), 1089-1118.
Berrone, P., and Gomez-Mejia, L.R., 2009. ‘Environmental Performance and Executive Compensation: An Integrated Agency-Institutional Perspective’, Academy of Management Journal, 52 (1), 103-126.
Bliss, R.T., and Rosen, R.J., 2001. ‘CEO Compensation and Bank Mergers’, Journal of Financial Economics, 61(1), 107-138.
Brisley, N., 2006. ‘Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives’, Journal of Finance, 61(5), 2487-2509.
Cai, Y., Jo, H., and Pan, C., 2011. ‘Vice or Virtue? The Impact of Corporate Social Responsibility on Executive Compensation’, Journal of Business Ethics, 104, 159-173.
Campbell, K., Johnston, D., Sefcik., S.E., and Soderstrom, N.S., 2007. ‘Executive Compensation and non-Financial Risk: An Empirical Examination’, Journal of Accounting and Public Policy, 26, 436-462.
Coles, J. L., Daniel, N.D., and Naveen, L., 2006. ‘Managerial Incentives and Risk-Taking’ Journal of Financial Economics, 79(2), 431-468.
Core, J., and Guay, W., 2002. ‘Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility’, Journal of Accounting Research, 40(3), 613-630.

Croci, E., and Petmezas, N., 2015. ‘Do Risk-Taking Incentives Induce CEO to Invest? Evidence form Acquisitions’, Journal of Corporate Finance, 32(1), 1-23.
Datta, S., Iskander-Datta, M., and Raman, K., 2001. ‘Executive Compensation and Corporate Acquisition Decisions’, Journal of Finance, 56(6), 2299-2336.
Dodonova, A., and Khoroshilov, Y., 2014. ‘Compensation and Performance: and Experimental Study’, Economic Letters, 124(2), 304-307.
Duffhues, P., and Kabir, R., 2008. ‘Is the Pay-Performance Relationship Always positive? Evidence from the Netherlands’, Journal of Multinational Financial Management, 18(1), 45-60.
Edmans, A., Gabaix, X., and Landier, A., 2009. ‘A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium’, Review of Financial Studies, 22(12), 4881-4917.
Gabel., H.L., and Sinclair-Desgagné, B., 1991. ‘Managerial Incentives and Environmental Compliance’, Journal of Environmental Economics, 24, 229-240.
Grinstein, Y., and Hribar, P., 2004. ‘CEO Compensation and Incentives: Evidence from M&A Bonuses’, Journal of Financial Economics, 73(1), 119-143.
Harford, J., and Li, K., 2007. ‘Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs’, Journal of Finance, 62(2), 917-949.
Hong, B., Li, Z., and Minor, D., 2016. ‘Corporate Governance and Executive Compensation for Corporate Social Responsibility’, Journal of Business Ethics, 136, 199-213.
Jeffe, A.B., Peterson, S.R., Portney, P.R., and Stavins, R.N., 1995. ‘Environmental Regulation and the Competitiveness of U.S. manufacturing: What does the evidence tell us?’, Journal of Economic Literature, 33, 132-163.
Jensen, M., and Meckling, W., 1976. ‘Theory of the Firm: Managerial Behaviour, Agency Cost, and Ownership Structure’, Journal of Financial Economics, 3(1), 305-360.
Karim, K., Lee, E., and Suh, S., 2017. ‘Corporate Social Responsibility and CEO Compensation Structure’, Advances in Accounting, In Press.
Kroll, M., Simmons, S.A., and Wright, P., 1990. ‘Determinants of Chief Executive Officer Compensation Following Major Acquisitions’, Journal of Business Research, 20(4), 349-366.
Kuo, C.S., Li, M.Y.L., and Yu, S.E., 2013. ‘Non-Uniform Effects of CEO Equity-Based Compensation on Firm Performance - An application of Panel Threshold Regression Model’, British Accounting Review, 45(3), 203-214.
Mahoney, L.S., and Thorne, L., 2005. ‘Corporate Social Responsibility and Long-Term Compensation: Evidence from Canada’, Journal of Business Ethics, 57(3), 241-253.
Mahoney, L.S., and Thorne, L., 2006. ‘An Examination of the Structure of Executive Compensation and Corporate Social Responsibility: A Canadian Investigation’, Journal of Business Ethics, 69(2), 149-162.
Manso, G., 2011. ‘Motivating Innovation’, Journal of Finance, 66(5), 1823-1860.
Minnick, K., Unal, H., and Yang, L., 2011. ‘Pay for Performance? CEO Compensation and Acquirer Returns in BHCs’, Review of Financial Studies, 24(2), 439-472.
Morse, A., Nanda, V., and Seru, A., 2011. ‘Are Incentive Contracts Rigged by Powerful CEOs?’, Journal of Finance, 66(5), 1779-1821.
Porter, M.E., and Kramer, M.R., 2006. ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’, Harvard Business Review.
Schmidt, D.R., and Fowler, K.L., 1990. ‘Post-Acquisition Financial Performance and Executive Compensation’, Strategic Management Journal, 11(7), 559-569.
Shleifer, A., and Vishny, R., 1997. ‘A Survey of Corporate Governance’, Journal of Finance, 52(2), 737-783.
Walley, N., and Whitehead, B., 1994. ‘Corporate Social Performance and Organizational Attractiveness to Perspective Employees’, Academy of Management Journal, 40, 658-672.
Watson, D., and Head, A., 2016. Corporate Governance. Principles and Practice. 7th ed. Harlow: Pearson.
Young, S., and Thyil, V., 2014. ‘Corporate Social Responsibility and Corporate Governance: Role of Context in International Settings’, Journal of Business Ethics, 122(1), 1-24.


Dr Athanasios Tsekeris

Entry qualifications

An applicant for admission to read for a PhD should normally hold a first or upper second class honours degree of a UK university or an equivalent qualification, or a lower second class honours degree with a Master's degree at Merit level of a UK university or an equivalent qualification.

International students will also need to meet the English language requirements - IELTS 6.5 (with minimum sub-scores of 6.0). Applicants who have taken a higher degree at a UK university are normally exempt from the English language requirements. A research proposal (between 1,000 and a maximum of 2,000 words) must be submitted as part of the application.

For more information please visit the NTU Doctoral School – Research Degrees webpages.

How to apply

How to apply

Applications are accepted all year round.

Download an application form here.
Please make sure you take a look at our application guidance notes before making your application.

Further information on how to apply can be found on this page.

Fees and funding

This is a self-funded PhD opportunity.

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Athanasios Tsekeris