Does equity compensation induce executives to maximize firm value or their own personal wealth?

Ethics, Equity, and Regulation

ISBN: 978-1-84950-728-8, eISBN: 978-1-84950-729-5

ISSN: 1041-7060

Publication date: 19 May 2010


Empirical evidence, however, has contradicted this ideal notion that mangers who are partial owners of the firm work to maximize firm value. Rather, managerial power in the form of earnings management and manipulation of insider information come to the forefront as a means by which executives can maximize the equity portion of their compensation packages. The Sarbanes–Oxley Act of 2002 as well as new accounting rules set forth by the Financial Accounting Standards Board may help to remedy some of the corporate ills that have surfaced in the past. This will not be possible, however, without compliance and increased corporate governance on the part of firms and their executives. Compensation committees must take great care in creating a compensation package that incites the executive to not only act in the best interest of his firm but also consider the welfare of the common good in his actions.


Henry, T.F. (2010), "Does equity compensation induce executives to maximize firm value or their own personal wealth?", Lehman, C.R. (Ed.) Ethics, Equity, and Regulation (Advances in Public Interest Accounting, Vol. 15), Emerald Group Publishing Limited, Bingley, pp. 111-139.

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