hartman et al ., 2017 ). B u s i n e s s F i n a n c e

Learning Engagement #2

TOPIC: Philosophical Ethics and Business

PROMPT:

Research a current Fortune 500 company’s executive pay. Present the compensation and discuss in terms of Chapter three and four. Should there be a cap on executive pay? Why or why not?

Discuss the role that corporate leadership plays in establishing the culture of an organization.

PROFESSOR’S GUIDANCE FOR THIS WEEK’S LE:

In 2016, CEOs of major Fortune 500 companies earned an average of $13.1 million in total compensation. In comparison, their workers — those in non-supervisory roles — earned an average of $37,632. That would make the CEO-to-worker pay ratio 347 to 1. Disclosed CEO pay at Fortune 500 companies is 10 times what the average Americans believe those CEOs earn. The typical American believes a CEO earns $1 million in pay, whereas median reported compensation for the CEOs of these companies is approximately $10.3 million.”

Can this inflated pay continue during and after Corona virus?

https://fortune.com/2020/05/27/ceo-pay-average-coronavirus-lisa-su-bob-iger-reed-hastings-salary/

NOTE: 

Post your 300-400 word answers by Wednesday 11:59 pm

Be sure to provide a substantive response to (2) of your classmates by Sunday 11:59pmP

Peer 1:

A strong and recognizable organizational culture helps to eliminate uncertainty, ensuring that everyone has the same system of interpreting behavior.

Managers create a social order by defining clearly what they expect from their employees. They guarantee continuity, which results from the fact that subsequent generations of participants in the organization share the same basic values and apply the same principles of operation. It is the management staff that is the element that creates and shapes the organizational culture to the greatest extent by selecting and communicating values important for the organization.(Alex Nicoll Sep 22,)

An employee can consciously identify himself only with a culture that is clear to him – in which he finds values that he can and wants to recognize as “his”.

If the modes of action and their motives are completely different from the employee’s value system, it will be deeply frustrating. This will result in a dissatisfaction with taking various actions against yourself.

The years of economic crisis have made the topic of top management remuneration a topic of public debate, especially in relation to the various institutions that dispose of assets on behalf of their clients.

The common practice of managers in financial institutions to take too much risk in order to achieve results that guarantee the payment of bonuses caused the world to shake its jobs. At the same time, it caused a quick reaction of financial supervision authorities, which changed the status of the code of good practice regarding remuneration of key positions in the financial industry and other management companies from a recommendation to the Capital Requirements Directive (CRD).(by Editors )

The entry into force of the above regulations is another reason why supervisory boards acting on behalf of the owners (shareholders) with the support of the HR department should take a look at the remuneration packages currently offered to directors, because I believe that there are very large differences that are not controlled by you, because they are private companies.(By Editors) 

Peer 2 

Jane Fraser has become the first woman to run a major Wall Street bank, when she took over as CEO of Citigroup in February 2021, a time of economic uncertainty due to the global pandemic (Egan, 2020; Hinchliffe, 2021). She takes after Michael Corbat, who retires after 37 years at the bank (Egan, 2020). Michael Corbat earned a base salary of $1,500,000 in 2020, with a cash bonus of $5,260,500, performance share units of $6,137,260, deferred stock of $6,137,250. It adds up to total compensation of $19,035,000 (Citi Group Proxy Statement, 2021). This is a decrease of 21% from 2019 and reflects that he inefficiently addressed regulators’ risk and control concerns (Financial Post, 2021).

High salaries are given out to CEOs, usually through stock options, correlate with how well the CEO navigates the company and strengthens its performance. Therefore, some people defend these high payments since CEOs will look for ways to increase stock prices. However, this kind of short-term planning interferes with long-time goals and is therefore not necessarily a good incentive (Hartman et al., 2017). In addition, high payments are also criticized because workers earn much less. The average worker compensation went up 1.8% in 2020, while CEO payment increased by 16% even though many CEOs denied their salary to prevent layoffs. But it seems those were rather symbolic since most compensation is obtained through stock options and stock awards, and the stock market performed unexpectedly strong (Morris, 2021). In addition, the board of directors still awarded bonuses to CEOs despite poor performance because of extraordinary circumstances (Gandel, 2021).

Executive pay has gone up 1,322% since 1978, and the CEO-to-typical-worker compensation ratio has changed from 21-to-1 in 1965 to 351-to-1 in 2020 (Mishel & Kandra, 2021). This raise is questionable as executives’ performance unlikely improved by that much in correlation to their workers. Instead, it is a question of power exploitation, and “corporate culture has become more tolerant of the pay” according to Debating Europe (2018), that CEOs receive. A cap on executive pay, such as 10 or 20 times the amount of a regular worker, would still be a significant compensation (Debating Europe, 2018). Even though CEOs determine the company’s strategy and compensation is tied to results, “the hard work of creating shareholder value is carried out by […] workers […]”, as justified by Reh (2018). Specifically, during times when layoffs and furloughs become necessary, the high CEO compensation can spark anger across the organization and lead to a corporate culture that, for example, cares less about the company (Reh, 2018). Even though too much regulation can also be harmful, these extreme payments need to be regulated, in my opinion. Corporate leadership is the role model of the company, and their behavior is reflected among employees. As discussed in the lecture, even people that usually tend to be unethical become (more) ethical around people who ‘are doing the right thing.’ Giving CEOs a more reasonable compensation can set a good example and set a better tone in the company culture