Ethics and Compensation Essay
Ethics and Compensation
Results of the Internal Revenue Service Exempt Organizations Executive Compensation Compliance Project had reviewed the compensation practices of several corporations in the United States, pointed the issues on tax compliance and further identified areas of abuse. On its report, high amounts of compensation were recorded in several cases, however the IRS by and large assessed them to be substantiated based on comparability data (McGookin, 2007).
Several conspiracies are being worked on by the IRS regarding the executive compensation compliance aspect. It was those controversies, besetting the current compensation of the executives in particular, that have rendered the broad public in full skepticism, according to “The 2007 Wharton Economic Summit Panel” . The apparent frequency imposed by companies or corporations in redesigning their executive programmes, along with its long-term incentives, generally poses a grave predicament in the ethics of corporal business (McGookin, 2007).
The principal issue of compensation at present is the way by which CEOs of large corporations in the US have made an amount of money from just one day on a work that an average employee can earn for a matter of year. According to the Associated Press survey, the total compensation of the major corporations have averaged a total of $10. 8 million, which is roughly 364 more times the salary of an average American worker.
While executives continue to accumulate more wealth while in throne of service, workers underneath the rung, on the other hand were granted the first federal minimum wage increase. However, the minimum wage, which is only $5. 85 still falls underside where the minimum salary in real terms had tumbled a decade ago (Simon, 2007). An issue in ” The Wall Street Journal” (2007) , moreover, had reported that there was an increase in the regularity of pay growth among workers in 2006.
Furthermore, an increase on the salaries and bonuses of chief executives among the 350 US major corporations was likewise put in record. However, delving deeper into the matter of increases in compensation, it seems unjust that half of the executives working with several major US Corporations have enjoyed a total compensation, that which includes salaries, bonuses and stock options, which on the other hand was over a hundred times the average wage of a US worker. Such data proves that there is an apparent broadening of disparity between executive and average-earners’ compensation.
The said data was supported by the Institute for Policy Studies and United for a Fair Economy wherein in one of their compilations, it was shown that a corporate CEO’s earnings in one day is comparatively equivalent to more than what average workers can make year round (McGookin, 2007 ) Provided such data, the manifestation of a complete American-executives-domination is put in line. To add further with the pleasure these executives enjoy, the value of their possible pensions were shown to have grown by an average of $ 1. 3 million (Simon, 2007).
Clearly, a medium that has long been of significance in retaining, attracting and motivating individuals to work is the tool of “reward”. But reward shall be accorded in proper distribution to appropriate individuals because getting it wrong may put the potential of demotivation and/or loss of talent instead . Standard and Poor’s 500 compensation issue On a preliminary analysis done by the Corporate Library documented that the CEO of Standard and Poor’s 500 company made an average of total compensation amounting over $14. 78 million in 2006 (Simon,2007).
The cumbersome issue and predicament regarding the executive compensation were highlighted in 2006, when a large amount of severance packages were apportioned to departing CEOs whose performance does not nearly qualify a standard. The remaining CEOs then were attacked by backdating scandals in relation with stock options in their companies. According to Simon (2007), the flaws in the compensation system were uncovered through the said backdating indignities, in which the seated CEOs are privileged to take what they like within their companies and the shareholders with impunity.
Disney’s compensation issue Take for another example the compensation issues at Disney. Shareholders of Disney polled at a 45% no confidence vote for CEO Eisner regarding his re-election. Some investors were rankled to know that Eisner himself was the beneficiary of the board’s decision to double the CEO’s salary, which amounts to $2 million (The Pay Gap,2007). Despite the fact that Disney’s stock is improving, there substantiates an apparent and unnecessary relationship between shareholder value and executive compensation.
Practically speaking, such relationship in the business arena allocates an unjust proportion of benefits towards the executives. A rise in the stock price is cordially adhered with the notion of welcome salvation for the employed executives but, tying everything to compensation or rewards, is the company’s performance in progress over time? Ethically, any switching in the approaches of putting management interests over that of the shareholder’s interest that Disney bargains into will not do any good for the company (The Pay Gap, 2007).
Yahoo’s compensation issue Evidently, the high cost of primary executive wage has induced in recent years as the amount of wages likewise increase and stock options were luxuriously paid off. Terry Sernel of Yahoo Inc. gained a total of $71. 7 million in 2006, according to the AP filings. Roughly, such amount is estimated to be $20 million and 20% more of the gross box office take spearheaded by A-list actors as Brad Pitt or Leonardo DiCaprio (the Pay Gap, 2007).
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 20 February 2017
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