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Executive compensation: the role of Shari'a compliance

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  • William Marty Martin
  • Karen Hunt-Ahmed
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    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.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.

    Volume (Year): 4 (2011)
    Issue (Month): 3 (August)
    Pages: 196-210

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    Handle: RePEc:eme:imefpp:v:4:y:2011:i:3:p:196-210

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Ethics; Executive compensation; Islamic finance; Shari'a compliance; Stock options;

    References

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    1. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
    2. Lucian Bebchuk, 2005. "The Growth of Executive Pay," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 283-303, Summer.
    3. Morgan, Angela & Poulsen, Annette & Wolf, Jack, 2006. "The evolution of shareholder voting for executive compensation schemes," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 715-737, September.
    4. James Angel & Douglas McCabe, 2008. "The Ethics of Managerial Compensation: The Case of Executive Stock Options," Journal of Business Ethics, Springer, vol. 78(1), pages 225-235, March.
    5. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
    6. Festing, Marion & Eidems, Judith & Royer, Susanne, 2007. "Strategic Issues and Local Constraints in Transnational Compensation Strategies:: An Analysis of Cultural, Institutional and Political Influences," European Management Journal, Elsevier, vol. 25(2), pages 118-131, April.
    7. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
    8. JAMES J. ANGEL & DOUGLAS M. McCABE, . "Market-Adjusted Options For Executive Compensation," Working Papers _001, Georgetown School of Business.
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