Lancaster University Management School - 54 Degrees Issue 12

misconduct perpetrated by management relating to the working environment. If the use of stock options in executive compensation contracts encourages managers to undertake risky and value-increasing projects, then workplace misconduct can be viewed as such a risky project. This type of misconduct is associated with signi fi cant economic costs to employers, employees and society – with the International Labour Organization (ILO) estimating an average of 4%of annual GDP (equivalent to $2.8tn) is lost to its direct or indirect consequences, such asmedical expenses, worker compensation and legal costs. Further, workplace violations can have serious repercussions for both the fi rmand its employees; fi rmsmight be legally sanctioned –most commonly fi nancially – or held liable for the loss of employee earnings resulting from worker accidents. We found positive relationship between risk-taking stock option incentives and workplace misconduct – the greater the risk incentives, the more misconduct there is in a company. This is shown in both the number and severity of violations recorded between 2000 and 2018. Further, following the introduction of Statement of Financial Accounting Standard (SFAS) 123R i n 2005, which mandated the expensing of share- based payments in Income Statements, leading to a signi fi cant drop in the use of stock options in an executive’s compensation package, there was a reduction in the relationship between the payment of these options and the severity of workplace violations. Our study shows the correlation between risk-taking incentives and workplace misconduct, speci fi cally, aggressive decision-making with regards to employees; now work needs to be done to uncover the exact causes and, thus, solutions. Dr Justin Chircop is a Senior Lecturer in the Department of Accounting & Finance. The paper CEORisk Taking Equity Incentives andWorkplace Misconduct , is co-authored by Monika Tarsalewska, of the University of Exeter, and Agnieszka Trzeciakiewicz, of Hull University. j.chircop1@lancaster.ac.uk FIFTY FOUR DEGREES | 17