Ethical Consideration - Salary Gap Between Ceo and Employees

Ethical Consideration
Salary Gap between CEO and Employees

University of the People

Asako Aiba

Ethical Consideration

Salary Gap between CEO and Employees

In the elementary sense, it is not ethical for CEOs to be paid so much more than other employees because excessive CEO salaries should be reasonably blamed for rising income inequality when workers’ salaries have stagnated as CEO and executives’ pay have been risen. The free market can be a valid reward distribution system because it may determine the value of CEOs and the other employees; if an employee feels that her pay package is low and unfair, she will move to another organization to get better pay. However, according to Venkatasubramanian (2009), the market is not really efficient in determining these fair values because the details of the pay packages or the process of recruiting candidates are often not very transparent; therefore, the market cannot be free enough to be a valid reward distribution system. Although Venkatasubramanian proposes a new theory based on statistical mechanics and information theory, it is extremely difficult for us to determine what is “fair” because different people contribute in different ways with different responsibility to the company business success.

In 2015, Gravity Payments CEO Dan Price took a drastic measure to reduce the gap between his salary and his workers’ salaries. He massively cut his own pay to raise the minimum wage of his company to $70,000 annually. According to Weiss (2015), Mr. Price had studied that the optimal level of happiness could be achieved with an income level around $70,000, so he decided to make a difference by cutting his own salary to $70,000 by 90% less than he previously made. His decision received acclaim from his employees and clients. However, Cohen (2015) reports in her article that  Ms. McMaster, former financial planner for Gravity Payments argued “(Price) gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.” The wage policy may diminish some workers’ motivation and work ethic to improve their performance to get better pay.    

People want to be treated fairly, but it does not mean that all employees want the same pay. Under the Gravity Payments policy, although an unskilled employee’s contribution worthens only $50,000 for the company revenue, the employee still earns $70,000 annually. I am not sure this wage policy supports the income equality although it helps to reduce the salary gap between CEO and his employees.  

I strongly believe that all employees’ salaries including CEO and upper management salaries are subject to ethical consideration. Transparency is the key when we address the ethical consideration. The sense of fairness varies a great deal depending on each individual’s value. From my personal experience, CEO and employees tend to be invisible for each other, and many workers simply blame on the excessive CEO salaries because it is difficult for them to find out the company’s pay practice. According to Huet-Vaughn (2013), if employees were disclosed the comparison between their salary and others, they generally worked harder and increased their performance. Furthermore, I believe that the company should share the performance information about CEO and executive with employees. It is defiantly not ethical for CEOs to be paid so much more than other employees behind closed doors under any occasion.