Ceo’s and Upper Management’s Acceptance of over Compensation Are Unethical During Times of Financial Struggle Within Organizations

Topics: Corporate governance, Board of directors, Management Pages: 5 (1714 words) Published: July 11, 2011
CEO’s and Upper Management’s Acceptance of over Compensation Are Unethical during Times of Financial Struggle within Organizations Financial Management

Abstract

This essay discusse
s the overpayment of CEOs and the effects these high base salaries have on businesses. Understanding that well compensated CEOs are generally quite productive and well deserving; there are those that seem to drop the ball and the business suffers. CEOs are hired in with contractual compensation packages, which do not give stipulations to cover incidents such as decreases in stock value, company downsizing, or bankruptcy. Many argue that CEOs are not compensated enough for the pressures they endure, that they are generally they first to receive pay cuts when the company is facing financial distress, and in some cases are first to be dismissed in order to save others in the lower echelon. Because of these compensatory packages given when hired, when the company’s financial stability is no longer solid, the CEOs are still guaranteed pay increases and incentives that they continuously accept. The Board of Directors may believe that their hands are tied and still feel obligated to compensate for past performance, or feel the need for continuous compensation for the purpose of retaining the employees. Regardless of their reasoning, the Board of Directors, are under pressure to make cuts that trickle down to the average workers. I will present, and offer support for my argument, that top executive’s over compensation is unethical during times when the company is in a financial struggle.

CEO’s and Upper Management’s Acceptance of over Compensation Are Unethical during Times of Financial Struggle within Organizations

There is one topic that almost always seems to spark a controversial discussion. It appears that this particular topic is what a great deal of people believes to be playing a major part in America’s economical decline. The topic issue that comes to mind is overpaid executives. Some argue that as business demands become more inexplicable, the demand for top executives increase and therefore they are justified to mandate larger salaries regardless of their performance. Although paying executes for performance that yields financial success for his of her employer may be fashionable, but it is not extremely as realistic as it should be. Corporations are so quick to give extra compensation to top executives when things are going well for the company, but rarely hold them accountable when things are not up to par. Instead of making the executives step up and take their fair share of the calamity of a financial load they have helped create, the companies continue to compensate and in some instances even increase compensation of these executives, thus creating more of a financial burden on the company. Even in the event of declining profitability and the company on the verge of bankruptcy, these top executives continue to accept the compensation that they believe they are due because of contractual compensational packages that they may have been given. Because these packages do not come with stipulations, which cover events such as financial hardship, the Board of Directors may feel that their hands are tied as far as over compensating upper management, still feel obligated to compensate for past performance, or feel the need for continuous compensation for the purpose of retaining the employees. Regardless of their reasoning for, the Board of Directors, are under pressure to make cuts that trickle down to the average workers. One of the hottest topics on political agenda lately has been the Unites States government’s proposed multi billion dollar bailout of Wall Street. Many see this as a chance to bring issues such as the overpayment of top executives to the forefront of discussion because many believe this to be one of the major causes for the economic crisis that America is experiencing right now. Both...

References: Megginson, W.L., & Smart, S.B. (2008). The Scope of Corporate Finance. Introduction to Corporate Finance (2nd ed.). Mason, OH: South-Western Cengage Learning.
Heilman, J. (2008). Pain in the Gulliver. Corporate Leader Daily. Retrieved from http://www.corporateleaderdaily.com/column/3/24013.html
Hawkins, J. (2007). Study Uncovers Big Gaps in Employee and CEO Perceptions of Management Performance. Business Wire. Retrieved September 22, 2008, from http://library.atehns.edu.2065/pdqlink?did=1397541091&Fmt=7&clientID=35895&RQT=309&VName=PQD
Reuters (2008, September 22). CEO Pay Pressure Builds Due to Wall Street Bailout. Retrieved September 22, 2008, from http://www.reuters.com/article/newsOne/idUSN2228338220080922?sp=true
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