Killing Conscience: The Unintended Behavioral Consequences of 'Pay For Performance'

(Forthcoming) Journal of Corporation Law, Vol. 39, Issue 1

Cornell Legal Studies Research Paper No. 14-06

42 Pages Posted: 12 Mar 2014

See all articles by Lynn A. Stout

Lynn A. Stout

Cornell Law School - Jack G. Clarke Business Law Institute (deceased)

Date Written: March 10, 2014

Abstract

Contemporary lawmakers and reformers often argue that ex ante incentive contracts providing for large material rewards are the best and possibly only way to motivate corporate executives and other employees to serve their firms’ interests. This Article offers a specific critique of the “pay for performance” approach. In particular, it explores why, for a variety of mutually-reinforcing reasons, workplaces that rely on ex ante incentive contracts suppress unselfish prosocial behavior (conscience) and promote selfishness and opportunism. The end result may be not more efficient employee behavior, but more uncooperative, unethical, and illegal employee behavior.

Keywords: incentive contracts, compensation, performance, ethics, prosocial behavior, corporate executives

Suggested Citation

Stout, Lynn A., Killing Conscience: The Unintended Behavioral Consequences of 'Pay For Performance' (March 10, 2014). (Forthcoming) Journal of Corporation Law, Vol. 39, Issue 1, Cornell Legal Studies Research Paper No. 14-06, Available at SSRN: https://ssrn.com/abstract=2407096

Lynn A. Stout (Contact Author)

Cornell Law School - Jack G. Clarke Business Law Institute (deceased)

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