Ethics and Ceo Pay Essay

Chief Executive Officer pay in the United States has risen dramatically. In the past three decades the salary of a CEO has risen significantly beyond what can be explained by variables such as firm, size, performance, and industry classification (Bebchuk & Grinstein, 2005). According to research, the CEO pay at the nation’s top 500 largest companies averages about $10. 9 million a year. The CEOs are also receiving an additional $364,000 in perks. It was estimated that the average CEO makes 319 times more than the average worker in 2008 compared to a multiple of 42 in 1980((Anderson, Cavanagh, Kliner, & Stanton, 2005).

CEO pay becomes an ethical issue when CEOs are compensated in excess for poor performance and when jobs of regular workers are downsized drastically but CEO pay is unaffected. The purpose of this paper is to discuss leader character, moral responsibility, and CEO pay. Leader Character and Moral Responsibility The Leadership Character Model is an excellent model that discusses qualities that a great leader should possess. The leadership character model is a leadership theory developed in 2005 by Turknett Leadership Group. This model is an excellent prescription for a good leader and is described in terms of a pan-balanced scale.

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Integrity is the base and foundation of leadership according to this model. In addition to integrity, effective leadership is also a balance between respect and responsibility. Where respect exists, individuals feel a sense of partnership, equality, and fairness. When responsibility is established, each individual is willing to take initiative and act for the good of other and the organization (Turknett & Turknett, 2005). A leader’s character should be grounded in integrity. A leader should be honest and completely trustworthy.

A leader with integrity doesn’t alter facts for personal gains, always does what is right, always tells the truth, and is a promise keeper. A person with integrity makes wise decisions when there is conflict. Without integrity it is impossible to be a successful leader. Respect helps create an environment of teamwork and partnership. Respect is particularly important in times of conflict and criticism. In addition, a respectful leader is a humble leader. When a leader is humble, the individual is able to respect the value of all employees regardless of job title, education level, and economic status.

Lastly, responsibility is just as important as respect. A responsible leader accepts full responsibility for personal success/failures and well as the success/failures for the organization as a whole. Responsibility requires the development of the following qualities: accountability, self-confidence, courage, and focus on the whole (Turknett & Turknett, 2005). As stated above, moral responsibility comes with the development of four core qualities. These four qualities are: accountability, self-confidence, courage, and focus on the whole.

These four qualities are derived from the Leadership Character Model ((Turknett & Turknett, 2005). When an individual is accountable that person takes initiative, is not afraid to hold others accountable, is willing to cross departmental boundaries to help complete a tasks, and takes personal responsibility for organization success/failures. Moral responsibility also comes with the quality of being self-confident. A person that is self-confident has a self assured behavior, is flexible and willing to change, easily gives others credit, and isn’t afraid to tell the truth.

The third quality of responsibility is courage. Courage allows an individual to champion new or unpopular ideas, gives constructive criticism to others during conflict, accepts fee back, and completes difficult tasks even when there are obstacles. The last quality of responsibility is focus on the whole. With this quality the individual realizes that they are the representation of their company to their peers and customers, readily shares information throughout the company, and gathers information from all stakeholders when making decisions. In conclusion, a great leader should possess certain qualities.

These qualities will ensure that the leader is successful in leading himself and the organization. Integrity, respect, and moral responsibility are such qualities. CEO Pay in U. S Compared to Other Countries. Executive pay is significantly higher in the United States as compared to other countries. The United States CEOs are paid twice as much as Canadian CEOs, nearly three times as much as British CEOs, and four times as much as German CEOs. Compared to what average workers make, there is an even greater difference in pay of CEO in U. S. compared to the employee. U. S.

CEOs make 531 times the pay of their average hourly employee. In comparison, British CEOs make 25 times more, Canadians 21 times more, and Germans 11 times more. Other countries such as UK, France, Italy, and Spain are moving towards setting caps on top business executive pay (Anderson, 2007). In France, the new President is working to ban golden parachutes for poorly performing executives. This is being addressed because a company in France, Airbus, gave top executives an exit pay package of excessive amounts but at the same time cutting thousands jobs of regular employees.

In Germany, a government commission on corporate governance recently proposed capping executive severance payments. In 2003, the United Kingdom, shareholder obtained the right to cast advisory votes on CEO pay. Others countries have followed suit including the U. S. (Anderson, 2007). It appears that the United States CEO pay exceeds the pay of other countries. Other countries are taking steps to cap CEO pay and to compensate based on performance. CEO pay practices become unethical when the executive pay is at the expense of regular workers job cut and company downsizing. U. S. CEO Pay Practice

There is no debate that the CEO pay in America is growing. Perks, bonuses, and stock options in addition to salary are particularly controversial. Executive pay is significantly higher in the United States compared to other countries. CEO pay becomes unethical when individuals are excessively compensated for poor performance and when the excessive salary comes at the expensive of downsizing and salary cuts of other workers. Also, it becomes unethical when executives are engaging in unethical practices to ensure their excessive pay. In the United States, shareholders/board members are used to oversee executive pay.

This is often an unethical practice according to research. Board members are often chosen based on their support of ever-increasing pay including lucrative bonuses and stock option plans for top management. If board members do not vote in favor of top management the board member risk loosing their position, fees, and the prestige/power inherent of board membership (Anderson, 2007). There is a strong correlation between stock price and CEO pay. According to Anderson, this practice gives CEOs and board members incentives to engage in unethical practice (2007).

Reformers of CEO pay policy suggest the use of independent compensation committees. The independent compensation committee can play an important role of impartially evaluating executive’s performance and developing appropriate levels of compensation based on performance (Matsumura & Shin, 2005). This policy/practice is an example of an ethical practice that is fair and impartial. Establishment of these “independent” committees will potentially allow for a significant decrease the excessive CEO compensation seen in the U. S. In conclusion, the pay of CEOs in the United States is considered excessive and has caused much controversy.

CEOs are being paid an excessive amount of money in addition to perks, bonuses, and stock options. Often times, this compensation is not based on performance but on board members who are not impartial. Reform is necessary to address proper CEO compensation and to protect the interest and pay of employees at all levels.

References

Anderson, S. (2007, August 28). Executive Pay Debate Raging in Europe and the United States. Retrieved November 29, 2012, from Foreign Policy in Focus Anderson, S. , Cavanagh, J. , Kliner, S. , & Stanton, L. (2005). Executive Excess 2005.

Retrieved November 28, 2012, from Institute for Policy Studies and United for a Fair Economy Bebchuk, L. , & Grinstein, Y. (2005, April). The Grow of Executive Pay. Retrieved November 29, 2012, from Harvard University: John M. Olin Center for Law, Economics and Business Matsumura, E. M. , & Shin, J. Y. (2005). Corporate Governance Reform and CEO Compensation. Retrieved November 29, 2012, from School of business, University of Wisconsin-Madison Turknett, R. L. , & Turknett, C. N. (2005). Decent People, Decent Company: How to lead with character in Work and in Life. Retrieved November 28, 2012