Compensation Ethics: Guidelines for Developing a Code

Abstract

Companies that cancel underwater stock options and reissue them-ensuring that executives are protected from market risks on their options aren't doing anything illegal, the author states. On the other hand, is the practice ethical? Ditto for shifting executives' incentives to base salaries shortly before they retire to sweeten their pensions. These are among numerous compensation practices that the author considers unethical. He says that compensation professionals need an ethics code similar to codes for lawyers, doctors, and accountants. Such a code would make companies better and fairer places for employees as well as stockholders. Nevertheless, the author maintains he is not trying to preach a specific ethics code. Instead, he wants to place ethics issues on the compensation agenda for discussion by presenting his views on ethics for compensation practitioners, as well as companies, top management, supervisors, and employees.