To sin or not to sin?

Compensation premium in sin-industries

What makes doe-eyed graduates work for a firm that exploits human weaknesses? 

Young graduates often make emphatic declarations that they will not work for companies that engage in morally dubious activities. They profess to work for companies that they can be proud of. As someone who has just graduated, I can corroborate. 

Yet, we see sin firms attract good talent year after year. How do they do it? 

Let’s begin by understanding what makes an industry sinful. In colloquial literature, sin firms are found in sectors that make money by exploiting human frailties. Going by this definition, one may be tempted to conclude that all industries that negatively impact human health, directly or indirectly, constitute sin industries. But that’s not true.

There are many, many firms that produce products that are harmful to human physical and mental health – fast food and soft drinks are just a few examples – but are not classified as sin industries (yet).


In the world of sins, perception reigns supreme. This explains why it is okay for millions of children around the world to binge-eat fast food and drink soft drinks (despite repeated scientific warnings that excessive consumption of these edibles is harmful), but it is considered outrageous for the same children to indulge in smoking or drinking.

When it comes to the traditional sin industries (alcohol, tobacco, gambling and firearms), the following common themes emerge: 

  • These industries are perceived as harmful and have lost legitimacy in the eyes of the larger society
  • They operate in highly regulated business environments shaped by a succession of public policy initiatives
  • They are subject to intense level of public scrutiny; including the media and members of civil society

Now that we know what sin industries are, we focus on how they attract and retain executive talent. In other words, what effect does social context has on managerial compensation?

Executive remuneration is influenced by a range of quantifiable factors such as firm performance, experience, gender, tenure, etc.

But that’s not all.

Executive compensation is, in part, also determined by the prevailing social norms and the resulting firm perception. A 2016 study showed that executives are ready to take a pay cut in order to work for prestigious firms. The authors of the study contend that these superstar firms are able to extract a discount because prestige is a valuable resource that enhances the bargaining power of the party that owns it.

Here, we focus on what lies at the opposing end of the spectrum. The objective is to understand if negative perception of a firm’s product or service affects executive compensation. 

We analyse (executive) compensation data going back to the 1990s to see how executive compensation has evolved in traditional sin industries of alcohol, tobacco, gambling and firearms. These firms produce socially “unacceptable” products that violate social norms and as a consequence suffer from a loss of status. In line with expectations, we find that executives at sin firms are, on average, paid more than the executives at non-sin firms [Figure 1]. 

Using multiple linear regression techniques, and controlling for variables such as designation, tenure, gender, firm performance, etc., we determined that the executives in sin firms earn a 10.23% premium compared to executives at non-sin firms. We also find that the premium paid by tobacco firms (16.33%) is higher than what is paid at other sin firms, perhaps because tobacco is the most “stigmatised” sin product. 

It is interesting to note that the perception of what constitutes sin evolves with time (and space). Consider the case of Big Oil and Soft drinks. In recent years, Big Oil has received great flak for its contribution in the destruction of the environment. Growing climate change awareness has rendered oil stocks toxic to many investors. At the same time, advancements in nutritional science have established that soft drinks are extremely harmful and contribute to childhood obesity.

What do these new facts have to say about the sinful nature of oil and sweetened soda? Quite a lot, it seems.

Executive compensation in soft drinks industry higher than in oil until the last millennium
Executive compensation in oil industry increasingly rising above average in the second decade of the new millennium

Once again, we look at executive compensation in the oil and soft drinks industries – through the late 90s into the second decade of the new millennium – to look for signs of an emerging sin-premium. We find no evidence of a sin-premium in Big Oil between 1998-2002. A comparatively slight sin-premium (11.8%) – that emerges in the early 2000s – grows to 18.7% between 2010-18, as the threat to legitimacy of Big Oil intensifies further. On the other hand, we see no evidence of a sin-premium in the soft drinks industry.

The fact that we are able to find evidence of a sin premium in the oil industry, but not in the soft drinks industry, tells us that the perception of the oil industry has changed for the worse. This lost legitimacy necessitates that oil firms pay a premium to their executives to adequately compensate them. On the other hand, the soft drinks industry, although facing strong headwinds from healthier trends, has not yet gained widespread notoriety and is still socially acceptable.


There are some alternative explanations that could explain the higher than average compensation. Although in this study we control for all firm-specific characteristics such as firm size and firm performance, and most executive-specific characteristics such as gender and tenure, higher compensation premium in sin industries may also be attributed to the higher average ability of executives in these industries.


One thought on “To sin or not to sin?

  1. Very well written article. 🙂
    I think political will and action also decides the notion of morality for the country.
    As labelling something sinful is a very subjective topic we should rely on scientific information and data rather than popular opinions.
    Eg USA blaming video games for gun violence has no actual base or data to prove it.


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