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 significant 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 as medical expenses, worker compensation and legal costs. Further, workplace violations can have serious repercussions for both the firm and its employees; firms might be legally sanctioned – most commonly financially – 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 in 2005, which mandated the expensing of sharebased payments in Income Statements, leading to a significant 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, specifically, 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 CEO Risk Taking Equity Incentives and Workplace 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 | 23
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