Excessive CEO Compensation

Paper Summary:

In this article, the writer looks at the ethical elements of the discussion regarding bonuses and compensation for the CEO of an organization. The writer maintains that it is ethical for CEO's to receive large compensation packages, but only if it is inclusive of benefits for all stakeholders, not at the expense of them. The writer notes that the best way to do this is through long-term compensation packages that focus on long-term commitment and vision. The writer discusses that these packages must also focus on long-term profitability and growth for the organization, job security for employees, and return on investment for shareholders and other investors. The writer concludes that ultimately, CEO compensation should realistically follow measurable performance that benefits all stakeholders, not just a few.

From the Paper:

"The argument designating increasing CEO pay and decreasing shareholder value as unethical is an easy one to make. There is, however, a case to be made on the other side of the issue. Some argue that increasing CEO compensation is a simple matter of supply and demand and is driven by market forces. Others argue that the transition costs of replacing a CEO could be considerably more than the bonuses they receive. Yet another argument is that market fluctuations are inevitable and increasing bonuses are needed to retain top talent and that the investment will pay off over time. Eamonn Walsh goes as far to say that some CEO's are actually underpaid when comparing CEO compensation to stock value. It should be noted that this article focuses on the European market were CEO compensation is generally lower than in the United States. Research has shown that organizations in which their CEO's are compensated in the top 10% have an 80% percent chance of their stock outperforming their peers. Of this group the gains in market capitalization far exceeded the CEO compensation package about 80 percent of the time. On the other hand, organizations offering the lowest compensation had only a 50-50 chance of outperforming their peers."

Sample of Sources Used:

• Colvin, G. (2008). AmEx gets CEO pay right. Fortune, 157 (1), 22. Retrieved February 16, 2008, from General OneFile database.
• Liedtke, M. (2003). CEO pay continues rise despite stock market, job losses. Oakland Tribune, Apr 26 (), Retrieved February 15, 2008, from ProQuest Information and Learning Company database.
• Walsh, E. (2001). Are CEOs underpaid? European Business Forum, 7 (), 75. Retrieved February 16, 2008, from General OneFile database.
• Whelton, R. S. (2006). Effects of excessive CEO pay on U.S. society. The Braun Awards for Writing Excellence, 2006 (), 15-21. Retrieved February 16, 2008

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