Executive compensation: the role of Shari'a compliance

Abstract

Purpose

The purpose of this paper is to illuminate issues surrounding executive compensation as it relates to current understandings of Islamic business law.

Design/methodology/approach

The emerging bodies of literature in the fields of executive compensation and opinions of stock options under Shari'a law are reviewed.

Findings

It appears that the trend in offering employee stock options as part of a Shari'a compliant compensation package is acceptable in most cases, yet because of its close association with the more problematic idea of derivative transactions, the company must be vigilant in obtaining the approval from its Shari'a Standards Board before offering it as part of an overall compensation package.

Research limitations/implications

Existing quantitative data in this area are limited. Given the qualitative, exploratory nature of the design, generalizability is not as robust as other designs.

Practical implications

The paper makes recommendations about the inclusion of employee stock options as part of a Shari'a compliant executive compensation package.

Originality/value

This paper advances the extant literature on the ethics of executive compensation in general as well as adding to the extant literature on Shari'a compliance of executive compensation packages.

Citation

Marty Martin, W. and Hunt‐Ahmed, K. (2011), "Executive compensation: the role of Shari'a compliance", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 4 No. 3, pp. 196-210. https://doi.org/10.1108/17538391111166449