Ethics

The notorious amount of compensation paid to CEOs of companies has earned the attention of both the press and the public, in general. In the case study entitled Wages of Failure The Ethics of Executive Compensation, the proposal of Janice White, CEO of General Global, is discussed in consideration of its impact to executive compensation and to the organizations achievement of goals. According to White, she is willing to use performance as the primary basis for her compensation. In relation to her proposal, the main question revolves on whether it is necessary to grant Whites request or not. In consideration of the agreement view, it is appropriate to grant the request of White. According to the agreement view, there is a tendency for the Directors, who serve as the compensation committee to be biased in their decisions regarding executive compensation. Thus, it is not right for the Directors to formulate the compensation scheme for the CEO and to rely it solely on performance.

The argument view argued that Directors may be influenced by gratitude, self-interest, and an absence of reason to favor shareholders. First, the Directors, especially when their appointment is influenced by the incumbent CEO, hold a sense of gratitude towards the CEO. Thus, executive compensation is one of the means used to express this gratitude. Second, the Directors are also pressured by the fact that the compensation of the CEO becomes the basis for the directors compensation, too. Third, the Directors do not have any reason to favor shareholders and measure the compensation of CEOs on hisher ability to increase the organizations profitability.

Indeed, the compensation of CEOs, as requested by White, should be based on performance to avoid extravagant pay schemes. The agreement view provides further reasons to justify the use of performance-related pay schemes. Based on the said perspective, Directors have the tendency to determine CEO compensation based on gratitude, self-interest, and an absence of reason to favor shareholders.