CEO compensation structures and organizational performance

Business - CEO Compensation

ETHICAL ISSUES in CEO COMPENSATION PACKAGES

Should there be legislation that goes another step beyond what Congressman Frank has introduced and caps CEO compensation so that it will be more in line with compensation levels throughout the organization?

The legislation introduced in the form of H.R. 42918 is sufficient without capping executive compensation outright. The purpose and intent of the resolution is to ensure full disclosure of all the elements of management pay packages to shareholders as a means of addressing management abuse and self-dealing (Anderson 2008). There is a fundamental distinction between eliminating fraudulent practices or limiting the manner in which executive pensions affect corporate finances and an outright or absolute salary cap. Legislation specifically increasing shareholder control over the structure of executive pay packages in relation to other factors that could potentially affect the corporation, its employees, and shareholders does not necessarily conflict with the principle of free trade. On the other hand, outright salary caps without regard to their structure and source conflicts with the general principle of free trade. More importantly, such a salary cap does not necessarily ensure the increased control necessary to protect corporate interests from management abuse, fraud, and self dealing.

2. What should be the determinants for a CEO's salary?

Appropriate determinants of executive compensation include: (1) the overall financial health of the corporation; (2) the profit earned by the corporation; (3) the status and viability of employee pension plans; and (4) the will of the shareholders with respect to the specific underlying structure and origin of the factors that generate executive compensation packages. In principle, executive pay should not be completely out of phase with the financial health of the corporation's financial health, or with the viability of employee benefits (Lewis 2008). Likewise, the origin, source, and structure of executive compensation packages should reflect the purposeful will of corporate shareholders rather than elements within the exclusive control of the executives who benefit from them.

3. Does public awareness of the CEO's salary influence the branding of an organization? How? Give two examples, one negative and another positive.

It is perfectly understandable that public awareness of CEO salaries play a role in establishing corresponding attitudes toward the corporate Brand. Where corporations demonstrate socially responsible concern and altruism in the manner exhibited by corporate executives like Bill Gates of Microsoft and Ted Turner, or incorporated within the mission statements of Google, the corporate brand or public image is not necessarily harmed by public awareness of very lucrative executive compensation packages.