Executive Compensation: The Role of Shari’a Compliance

Abstract

Abstract Purpose The purpose of this paper is to illuminate issues surrounding executive compensation as it relates to current understandings of Islamic business law. Methodology We review the emerging bodies of literature in the fields of executive compensation and opinions of stock options under Shari’a law. Findings It appears that the trend in offering employee stock options as part of a Shari’a compliant compensation package is acceptable in most cases, yet because of its close association with the more problematic idea of derivative transactions, the company must be vigilant in obtaining the approval from its Shari’a Standards Board before offering it as part of an overall compensation package. Research limitations Existing quantitative data in this area is limited. Given the qualitative, exploratory nature of the design, generalizability is not as robust as other designs. Practical implications We make recommendations about the inclusion of employee stock options as part of a Shari’a compliant executive compensation package. Originality/value This paper advances the extant literature on the ethics of executive compensation in general as well as adding to the extant literature on Shari’a compliance of executive compensation packages.