Investors not impressed by impression management, according to Bangor Business School research

The practice of awarding hefty bonuses to employees within the Banking industry at a time of global Banking crisis has caused widespread controversy. Bank employees had grown accustomed to receiving substantial annual cash bonuses, and such bonuses in a period of recession became highly unpopular amongst the public in general. Banks have been seeking alternative methods of rewarding employees, including the award of ‘share option compensation’.

According to a recent ESRC funded study undertaken by Professor Lynn Hodgkinson, Dr Jo Wells and Dr Doris Merkl-Davies at Bangor Business School, this form of compensation is open to managerial manipulation and thus constitutes an important corporate governance issue. Share option compensation may potentially encourage opportunistic behaviour aimed at maximising the value of share options. This is done either by retrospectively selecting a grant date which coincides with a share price low or by artificially decreasing the share price of their company on the grant date by manipulating information releases (impression management).

Further findings are expected as the Bangor Business School team of researchers continue to research this matter.

Publication date: 11 April 2011