Ethics of Executive Compensation

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Societal Perspective:

At first it may not seem as though society as a whole can benefit from these high levels of payment, but there are certain beneficial aspects that cannot be denied. One of those aspects would be that highly paid executives working for successful companies can create jobs for thousands of citizens. If their vision and expertise are superior to their peers then not only do they create jobs but they can also improve the economic markets with strong company performance that encourages investment. As more people invest for retirement the company can pay dividends which support and strengthen society. A person should be able to see that high levels of employee payment maybe important to retain that level of talent within an organization.

Additional Considerations:

The one factor that needs to be pondered is the difficulty in measuring performance. While it may be possible to see that a company performance is excellent over a specific period of time. It is not equally as simple to determine whether or not the excellence is due directly to the performance of the executives. In some cases a person could argue the executives are far removed from the day to day work and the rest of the employees actually create the positive results. However this theory will be equally difficult to prove; so it is better to state that both parties, executives and regular employees, enjoy a symbiotic relationship where each needs the other to maximize company potential. In this case the interest-based approach would favor putting a cap on the compensation levels since the organization will not be provided any specific or quantifiable gain.

Conclusions

The interest based criteria explores the impacts to all of the stakeholders through high levels of compensation. While a strong argument can be made to keep compensation levels uncapped to help retain the best talent. The analysis has shown that it really isn’t possible to determine if talented individuals really make a quantifiable difference for companies. By paying out less in compensation Company X will have more retained earnings and higher financial performance because of the reduced expenses. After all, compensation is really just another administrative expense that lowers earnings. Due to these factors an interest-based approach supports a cap on compensation. This cap on compensation should be set by the BOD in the corporation’s bylaws to limit the CEO pay to $5 million or less each year. Even though there would be a compensation cap executives can still be highly compensated for their performance with the $5 million limit. Other employees in the corporation will also be incented to work hard and excel at their jobs. This could be reflected in the mission statement by stating “through a sound fiscal partnership between all employees Company X will provide their customers with a quality affordable product.”