published on November 24, 2015
Executive Compensation and Moral Luck
Executive compensation is wrought with problems of moral judgment. To the extent that compensation rewards or penalizes behavior for which an executive is not justifiably responsible, it is also a problem of luck. Although executive compensation is both a problem of morality and luck, moral luck—which seems to occur when our moral judgments about a moral agent's conduct or character are influenced by factors beyond the agent's control—has not been a factor in the compensation debate. There remains controversy as to whether moral luck is a real or imagined problem, but if it exists, it should be factored into the compensation equation; if it does not, we cannot deny that moral performance presents a measurement problem. Thus, we are forced to accept that moral luck, real or imagined, has important implications for the ways and means by which executives are compensated.