Antecedents to Self -Serving Behavior - Literature Review

The Role of High Executive Pay as an Antecedent to Self-Serving Behavior
Literature Review
Lynn Pregitzer
Pepperdine University
EDOL 766
Alex Liu, Ph.D.
January 29, 2010 
The Role of High Executive Pay as an Antecedent to Self-Serving Behavior
Two years ago, President Barack Obama capped executive compensation at $500,000 at companies that received government bailout (Obama, 2009). The President, like the public, was disgusted with the hubris of corporate executives who asked congress for bailout monies and later paid themselves multi-million dollar bonuses, purchased lavish corporate jets and spent millions on luxury office renovations. In a speech addressing the nation, President Obama said “For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste—it’s a bad strategy (Obama, 2009)”.
Past research has shown a strong relationship between employee’s behavior and their compensation (Robbins & Judge, 2011). Given this link, companies design pay and bonuses to reward and recognize employees that achieve organizational goals. Proper reward structures entail thoughtful planning and execution to ensure that the resulting employee behavior is in alignment with the organization’s mission(Robbins & Judge, 2011). In spite of well-intentioned compensation structures, bonus systems have gone awry in recent years. The systems incentivized executives to pursue high risk investments for extraordinary monetary returns.
Similar to President Obama (2009), others have also written about the excessive executive pay playing a role in the global economic crisis (Blinder, 2009). Bebchuk and Fried’s (2006) book, Pay for Performance, discusses the conflicting statements made regarding the impact of unwarranted executive compensation. They posit that the flawed corporate governance systems give executives power over board of directors, which have a fiduciary duty to the shareholders to protect their interests. The boards of directors, who have the responsibility of CEO oversight, thus, are conflicted. Some of these conflicts are: 1) The board during election is selected by management and presented on proxies to shareholders, 2) the CEO influences the board compensation, and 3) the directors are usually socially connected with the CEO. Due to this weak circular system, executives have power to influence their own pay. The authors find that without a complete reform, change will be difficult.
From a social and psychological view, this behavior is partially driven by one’s belief of what money represents. Kirkcaldy and Furnham (1993) found in their research that the work ethic of an individual influences one’s attitude towards money. As part of a good work ethic, money is presumed to equate to success because it measures one’s accomplishments (Kirkcaldy & Furnham, 1993). Other literature has described the symbolic nature of money. Power, one of various symbols human’s strive for, is closely associated with the accumulation of wealth (Mitchell & Mickel, 1999).
In a social context, an individual’s use of power varies based on their own perception of how powerful one is (Brass & Burkhardt, 1993). A leader is also given a sense of legitimacy based on the authority provided by a formal position, creating a sense of control (Robbins & Judge, 2011). In their study, Brass and Burkhardt (1993) find that individuals in formal power positions regularly demand and order compliance from others. Indeed, it is the prerogative of the powerful to use their position to influence others to achieve their own goals. From Maner and Mead’s (2010) perspective, these situations arise when dominating leaders see a threat to their position.
The approach/inhibition theory of power explains that the powerful will lean towards an active behavioral manner towards achievement of rewards (Kelter, Gruenfeld, & Anderson, 2000). The theory acts to complement studies asserting that power inhibits an individual’s capacity to have consideration for others (Galinsky, Magee, Inesi, & Gruenfeld, 2006; Gruenfeld, Inesi, Magee, & Galinsky, 2008) . Because more resources are available to those at the top of an organization, the top executives are more likely to act on internal cues rather than situational and environmental cues (Rus, van Knippenberg, & Wisse, 2010a). The same research also found that leaders have a personal philosophy regarding a self-serving or group-serving leadership style. Consequently, based on their personal definition of what an effective leader should be, resources will be allocated accordingly (Rus, et al., 2010a). In a similar study, the leader’s social reference was tested for relevance to their decision making processes for allocating resources to oneself (Rus, van Knippenberg, & Wisse, 2010b). The study looked at leaders who strongly identified themselves in the same context of other powerful leaders. Thus, they based resource allocation decisions on the standards of the social circle that defined them. This cognitive dissonance combined with the belief that effective leaders must be self-serving was shown to lead to behaviors primarily benefiting themselves (Rus, et al., 2010b).
The above review suggests the probable causation of excessive executive compensation to acts of self-interest. Persons receiving excessive amounts of bonus rewards begin cognitively disassociating themselves from others. The sense of disconnect and accumulation of wealth acts as a predictor to the propensity of an individual to be self-serving and reject the needs of the group. The causal relationship will vary along a continuum of self-serving to group serving behavior depending on the leader’s personal leadership beliefs.
 
References

Blinder, A. S. (2009). Crazy Compensation and the Crisis. Wall Street Journal - Eastern Edition, 253(123), A15.
Brass, D. J., & Burkhardt, M. E. (1993). Potential Power and Power Use: An Investigation of Structure and Behvaior. Academy of Management Journal, 36(3), 441-470.
Galinsky, A. D., Magee, J. C., Inesi, E. M., & Gruenfeld, D. H. (2006). Power and Perspectives Not Taken. Psychological Science, 17(12), 1068-1074. doi: 10.1111/j.1467-9280.2006.01824.x
Gruenfeld, D. H., Inesi, M. E., Magee, J. C., & Galinsky, A. D. (2008). Power and the Objectification of Social Targets. Journal of Personality & Social Psychology, 95(1), 111-127.
Kelter, D., Gruenfeld, D. H., & Anderson, C. (2000). Power, Approach and Inhibition: Stanford University, Graduate School of Business.
Kirkcaldy, B., & Furnham, A. (1993). Predictors of beliefs about money. Psychological Reports, 73(3), 1079.
Maner, J. K., & Mead, N. L. (2010). The Essential Tension Between Leadership and Power: When Leaders Sacrifice Group Goals for the Sake of Self-Interest. Journal of Personality & Social Psychology, 99(3), 482-497. doi: 10.1037/a0018559
Mitchell, T. R., & Mickel, A. E. (1999). The Meaning of Money: An Individual-Difference Perspective. [Article]. Academy of Management Review, 24(3), 568-578.
Obama, B. (2009). Remarks by President Barack Obama on Executive Compensation with Secretary Geithner Retrieved January 25, 2011, from http://www.whitehouse.gov/the_press_office/RemarksbyPresidentBarackObamaOnExecutiveCompensationSecretaryGeithner
Robbins, S., & Judge, T. (2011). Organizational Behavior. Upper Saddle River: Prentice Hall.
Rus, D., van Knippenberg, D., & Wisse, B. (2010a). Leader power and leader self-serving behavior: The role of effective leadership beliefs and performance information. Journal of Experimental Social Psychology, 46(6), 922-933. doi: DOI: 10.1016/j.jesp.2010.06.007
Rus, D., van Knippenberg, D., & Wisse, B. (2010b). Leader self-definition and leader self-serving behavior. The Leadership Quarterly, 21(3), 509-529. doi: 10.1016/j.leaqua.2010.03.013