CEO Compensation

Patrick Lyall
Ethics and Social Justice
Dr. McDonald

Corporate and CEO Trust.

How much do you trust corporations / big business?
How much do you trust CEOs?

Public Perception
In 2002, a Gallup poll found that 90% of Americans felt that people running
corporations could not be trusted to look after the interests of their employees, and
only 18% thought that corporations looked after their shareholders. 43% believed
senior executives were only in it for themselves. (Weiss, 2014)
The New York Times was also quoted, stating the majority of the public
believes that executives are bent on destroying the environment, cooking the
books, and lining their own pockets.(Weiss, 2014)

CEO to Average Employee Salaries

One reason for distrust of executives, in addition to the 20002002 scandals, is CEO to average employee salaries in 1980
was 42 to 1, in 1990 it was 107 to 1, and in 2000 it was 525
to 1. In recent years the ratio has declined to 325 to 1,
however the discrepancy is still too large, even outrageous
compared to all other professional pay-scale comparisons.
(Weiss, 2014)

Modern Robber Barons

Many analysts tend to view any stakeholder (other than
stockholders) as net drainers of value; that is, if you pay
employees more, you will earn less in profits. This is a
misunderstanding among many today about business in
general that dates back to the turn of the twentieth century
when so-called robber barons wielded vast sums of wealth
and were not ashamed to flaunt it. (Weiss, 2014)

High CEO Compensation Can Cause:

A.This zero-sum concept leads to short-term thinking and can inadvertently
support reckless risk-taking among those driven only by short-term profits.
(Weiss, 2014)
B. Research on the effects of executive compensation has demonstrated that
higher levels of monetary rewards exacerbate executive risk aversion and
lead to decreased risk-taking (Dow and Raposo, 2005) which could lead to
negative firm performance. (Pissaris, 2010)

How Much Should CEOs Be Paid?

They may own the business. Isnt it their company?
Can we really put a limit on salary? Is that still capitalism?

But when is it exploitative? How much is too much?

In this economy who has control? Employers or Employees?

Systematic Greed
Over a recent 35 year period those at the very top saw their
compensation rise at fifty times the rate of those in the
middle. Still another measure of the vastly unequal
distribution of gains in compensation in the recent era is that
the top 1% gained more than the bottom 50% during the
recent 1997-2001 period.
In fact, the top 1% of earners now account for 11% of the
nation's total income, triple their share a generation ago.
(Friedrichs, 2009).

Is Americas CEO Compensation Worth it?

Justifying extravagant CEO compensation is vulnerable to
challenge on many grounds. First, if these claims had merit,
one would expect to find equivalent disparities in other
countries, but this has not been the case. if in the United
States the average CEO was getting paid several hundred
times the average worker in his company, in Japan the ratio
was just 11 to 1 and in Britain 22 to 1. (Friedrichs, 2009).

Is Americas CEO Compensation Worth it?

There is no particular evidence that American corporations
during this period have been more effectively managed or led
than their Asian or British counterparts, or that American
CEOs are more talented and harder working.
Altogether, it is far from self-evident that corporate CEOs
who receive vastly exorbitant compensation do a better job
by any reasonable criteria than CEOs who are paid much
more modestly. (Friedrichs, 2009).

Works Cited
Friedrichs, D. O. (2009). Exorbitant CEO compensation: Just reward or grand theft? Crime, Law and Social Change, 51(1),
45-72. doi:http://dx.doi.org/10.1007/s10611-008-9144-2
Pissaris, S., Jeffus, W., & Gleason, K. C. (2010). The joint impact of executive pay disparity and corporate governance on
corporate performance. Journal of Managerial Issues, 22(3), 306-329,283.
Weiss, J. (2014). Business Ethics: A Stakeholder and Issues Management Approach (Sixth ed.). San Francisco, CA:
Berrett-Koehler.