Huge Salaries and Benefits for CEOs, Research Paper Example

Hearing about huge salaries and benefits for CEOs is disconcerting to much of the public during strong economic times, but these large incomes become even more questionable during shaky economic times.  When people are being laid off and shareholders are losing significant amounts of money, is it ethical for top officers to receive the same compensation as before? Ethically, what constitutes fair salary distributions?  Such questions by the public were fueled when TV showed the Big Three auto CEOs testifying before Congress in 2009 after arriving in their individual private jets, or the BP oil president being questioned about the enormous oil leak into the Gulf of Mexico and then enjoying a yacht race in Europe the following day. The results of several surveys conducted of executives in the past year do not bode well for this compensation issue to be resolved in the near future.

In a study last year, Harris examined five common public criticisms of executive pay rates: 1) CEO pay is wrong, because it is too large to be morally justified, 2) The disparity between the executives’ and average workers’ pay is too great; 3) CEO pay is not governed by just and fair standards and (4) officer compensation does not solve the agency problem, and incentive pay does not work. Much of these concerns come from the fact that executive salaries have been increasing at unparalleled rates over the past several decades because of decreasing the marginal tax to 33% by 1987, a bull market reigning from 1982 to 2000, and a scarcity of strong senior management talent. During this period of time, CEO salaries had very little if any controls placed on them (Bruvik and Gibson).

Surveys show that the public and executives’ concerns about the ethics of pay are not aligned. A study conducted by the Health Care Compliance Association and the Society of Corporate Compliance and Ethics (SCCE) found very little relationship between how officers acted ethically and how they were compensated. SCCE CEO Roy Snell explained, “Only a minority of companies have made ethics and compliance a process for determining how employees are compensated, and only about one company in six ties employee bonuses and incentives to ethical performance.”  Organizations in general have not done very much to encourage ethical behavior in their officer ranks. The survey found that only about a third of respondents reported that ethics and compliance significantly affected compensation; 56% indicated that compliance plays little or no role; the numbers for nonexecutives were not any different. Less than 20% of employees even knew if compliance and ethics metrics were being used in their organization’s executive evaluations; only 15% of companies said that ethics played a role in bonus or incentive compensation awards (Steffe).  In other words, the general public, which includes the workforce, may be concerned about the executives’ high pay, but they are not keeping informed about it or doing much to change the status quo.

Therefore, this leaves it up to the ethics of the companies and their executives, themselves, to determine what is right or not in terms of pay. As noted above, it does not appear that most companies are paying their CEOs based on ethical considerations. What about the executives?  Orlitzky, Swanson and Quartermaine surveyed 200 executives to determine if there was any correlation between an executive’s preference to receive much greater sums of income and benefits over the average employees on the one hand and a tendency to downplay or ignore values on the other.  The researchers found that those executives who wanted to receive higher- than-the-norm salaries were, by their own accounts, not predisposed to view ethical values in their own decision making. For example, they said they agreed with such statements as “facts are usually more important than values in any decision I make in my company,” “business ethics is irrelevant to good decisions,” and “ethical training programs are a waste of time.” However, they disagreed with the statements “values have a place in corporate life” and “increasing pay inequality is a worrisome trend.”  In addition, those executives who did not recognize the importance of ethics did prefer greater income differentiation skewed toward top management rather than egalitarian pay ratios, which were preferred by those who were more concerned about ethics and values. In fact, many of the executives surveyed indicated that they wanted large salaries “not” to deal with ethics. To the contrary, the top managers who were more interested in ethics for decision making said they wanted fairer pay throughout their organizations.

The implications from such surveys are many: First, if the public is concerned about the salaries and benefits that a CEO or other executives are receiving, they better be concerned about the company’s ethics and values, as well. They are going to find much more ethical individuals when the salaries on top are not outrageously higher than the rest of the workers. Second, although there has been much talk about ethics over the past several decades since the Enrons, etc., it does not appear to have made much of an impression on the value structure of the top people or their organizations. Third, then who is watching out for the values and behavior of the executives, if it is not the management, board or even the other officers or the public at large? Is it no wonder that the recent economic problems stemmed from greed and unchecked desire for more wealth?  Nor, did all the problems lie with business: There were many homeowners who knew they could not afford the money they borrowed.

If the U.S. does not want to keep on repeating the same problems of the past with the top managers displaying unethical behavior, then compensation plans must be put into place that reward officers on more than the income they bring in; human resources should think twice about hiring people who are interested first and foremost about the money they make; and consumers need to understand that they cannot have it both ways—that is, thinking they can be selfish and greedy, but not big business.

Works Cited:

Bruvik, Kenneth, and Jane Gibson. Reflections on executive compensation. Proceedings of the Allied Academies Internet Conference 12 (2010):132-138

Orlitzky, M.arc, and Diane L. Swanson  (2010). Do executives who prefer exorbitant salaries downplay ethics? Decision Line 41.2 (2010): 11-14.

Steffee, S. Weak link between business ethics and executive compensation. Internal Auditor 66.4 (2009):16