Management Accounting Section Midyear Meeting

Workplace Safety Incentives, Board Risk Oversight, and Employee Safety

• In Event: ESG Issues

Abstract

In this study, we examine whether and how managerial incentives and board risk oversight impact the safety of a key stakeholder group, employees. First, we inspect whether workplace safety performance contingent incentives (WSI), bonus pay-to-performance sensitivity, and equity incentives impact employee injuries. Our results show a negative association between on-the-job injuries and WSI and equity delta but a positive association between on-the-job injuries and bonus pay-to-performance sensitivity and equity vega. Next, we examine the influence of board composition, particularly board independence, on the rate of employee injuries. On the one hand, outside directors can be more effective in monitoring myopic cuts in workplace safety investments. On the other hand, outside directors can demonstrate a short-term financial focus, increasing the demand for greater current earnings. Which effect prevails is an empirical question. Exploiting the SOX as a plausible exogenous shock to board structure, we find that on-the-job injuries increase for firms that transition to independent boards. Also, firms whose boards turn majority independent become less likely to integrate WSI in executive compensation contracts. Taken together, the present paper provides novel evidence on two firm-level factors that can impact employee safety - internal performance measurement systems and board monitoring and advisory.

Authors

• Russell Han, University of Illinois at Urbana-Champaign

• David Park, Seoul National University