Is Executive Compensation Ethically Sound?

Is Executive Compensation Ethically Sound?

Throughout its life, a corporation may experience many debatable issues such as social responsibility, corporate governance, corporate wrongdoing (bribery, fraud, and scandals), workplace harassment, and discrimination. These issues are bombarded through many sources of the media such as newspapers, television ads, magazines, newscasts, and many more. Executive compensation is one debatable issue that is no stranger to the media. Some people agree with CEO’s receiving millions of dollars for their work and others disagree saying it’s not justifiable that one person receive millions of dollars as a salary. Here, we contend that the million-dollar salary and other benefits such as bonuses and stock options warrant executive compensation, as long as the way the CEO attains the salary is by no means illegal or unethical. This means no foul play, no “cooking the books”, no discrimination, no displacement of workers, etc. exists. We also contend that executive compensation is warranted if others benefit from this compensation. In this paper, you will also be exposed to reasons for this warrant and some personal insight as to why CEO’s deserve these high payouts.

An organization’s CEO holds the highest position within the entire company. With this position come many qualities and traits that no other position would entail. CEO’s are known for their excellent leadership skills because they are responsible for providing direction to everyone in a company. A CEO must make sure everyone in the company (from top-level management to front line workers) is contributing to the wellness of the organization. He or she must make sure all employees are furthering corporate goals. Aside from direction, CEO’s also bring a culture to the organization. A firm’s culture is strongly dependant on the success of the organization and it is up to the CEO to foster that culture among the employees. A CEO also brings knowledge to the organization. In most cases, the CEO is someone who has been in their position for a long period. The CEO will usually have years and years of experience and this is critical to any organization, as it cannot be easily replaced. This experience also translates into knowledge that cannot be substituted for anything else. This knowledge is also vital to the success of an organization because it is of the highest form in the company. Meaning no one possesses more knowledge than the CEO. These reasons are reasons that merit high executive compensation. In the next section of this paper you will understand why executive compensation is ethically sound.

When a corporation is formed a series of shareholder’s undergo a risk in their investment. They are investing money into a company and most of the times have one goal in place: “to maximize profit, and therefore, shareholder’s wealth. From this perspective, all legal business behaviours which are aimed at maximizing profit are in a fundamental sense, ethical” (Carr and Valinezhad. 1994, p. 85). This statement indicates executive compensation is ethically permissible as long as no illegal acts are being pursued. Executive compensation is also acceptable as long as the CEO involved is not increasing his or her wealth at the expense of others. If the CEO is becoming rich off the downfall or suffrage of others this is not ethically sound. If poor working conditions are fostered to employees of an organization and this allows the CEO to become rich, this is also not ethically sound. However, if the CEO is maximizing shareholders return or profit and is not only contributing to his/her “well being, but also to the welfare of society,” (Carr and Valinezhad. 1994, p. 85) this is ethically sound.

Another reason why executive compensation is permissible ethically is because a person has the freedom and liberty to embark on any occupation they desire. If someone wants to be a CEO of a large organization then they have the freedom to do so. If someone wants to be a pilot, an engineer, a scientist, they have the freedom to do so. Is it wrong that some engineers make six-figure salaries? Is it wrong that pilot’s of major airlines make millions of dollars a year? No, because they had the freedom and liberty to do so. According to Raymond Rodgers and Susana Gago, freedom equals liberty plus equality. “Liberty relates to the natural rights of individuals to self-determination (Rodgers and Gago, 2003, p. 189). They also contend that equality translates into the equal rights of attaining one’s goals. This means people have the equal rights to become a CEO, pilot, or an engineer.

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