“Safety Suffers as Stock Options Propel Executive Pay Packages”

The New York Times reports on a study that found a correlation between generous company stock options for executives and the incidence of serious product recalls of the companies products.

The study, “Throwing Caution to the Wind: The Effect of C.E.O. Stock Option Pay on the Incidence of Product Safety Problems,” concluded that “C.E.O. option pay was associated with both a higher likelihood of experiencing a recall as well as a higher number of recalls.”


The researchers scrutinized companies in two industries that are closely regulated by the Food and Drug Administration. All of the companies had sales and assets of at least $10 million. The academics looked at the size of stock options in proportion to a chief executive’s total pay and calculated a two-year average, finding that recalls tended to be more prevalent at companies with higher option percentages. The names of specific companies were not cited in the study.

One group of companies produced consumer staples like foods, beverages and personal care products, while the other manufactured health care products, including medical devices and pharmaceuticals. …

Their analysis examined two significant types of product recalls: those in which a product could cause serious harm or death and those in which exposure to a product might cause temporary or medically reversible health consequences.

The full NYT story is here.

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