Ethics Case Study Samples

Employee Share Ownership Schemes (ESOPs) is one of the commonly applied performance based payment schemes for corporate executives to motivate them to maximize shareholders wealth. It solves the conflict of interest between management and shareholders. However, management have adopted innovative ways of abusing ESOPs to meet their selfish interests at the expense of shareholders. This paper explores the ethical issues around myopic innovations that have been on ESOPs by executive.
The stock options are issued at a price that is equal to the prevailing market price at the time of issue. The logic is that management will work hard to ensure that the value of the corporation increases so that it is reflected in the market share price. Managers can profit by exercising the options and selling it at the market price. Thus, it creates a win-win situation for both managers and investors. However, this is not always the case. In some instance, the share price fall below the exercise price. Consequently, management have designed innovative ways to cushion them from such eventualities. Repricing and backdating were some of the techniques that were applied. However, they have been curtailed by the Sarbanes-Oxley Act. Techniques that are currently being applied include spring-boarding and bullet-dodging.
These measures raise serious ethical concerns. For instance, issuing options to employees just before good news are announced or delaying issuance until bad news are announced is unethical. It borders on insider trading as it gives one party informational undue advantage over other investors. Besides, it is beats the whole purpose of introduction of ESOPs. Employees will not have any incentives to work hard to increase the market share price because they are cushioned for any eventualities.