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2006, Issue One: Vol. 5, No. 1
How Much Is Enough? The Ethics of CEO Compensation
In January of this year, the SEC voiced its concern about excessive CEO compensation by voting to publish for comment proposed rules that would amend disclosure requirements for executive and director compensation. The rule changes would make it more difficult for companies to hide "perks and pay" from the public. Public comment continues through April 10, 2006. The move fueled an already ignited debate on CEO pay, with everyone from stockholders to employees asking the question, "How much is enough?" In this issue of GoodBusiness, readers will find a variety of perspectives on the issue of executive compensation and inequities in pay.
Leading scholars from several universities discuss the structure and ethical issues surrounding CEO compensation packages, and research linking values and salary preferences of business executives. In several articles, practitioners and compensation experts examine in-depth proposed compensation disclosure regulations, changes in compensation programs, and the importance of disclosure in building trust. A study of what is happening abroad is also provided. Finally, two authors add a unique perspective to the discussion by asking readers to ponder some important questions. One author asks, "When does CEO pay become an ethical issue?" Readers also will find a sobering account of the disparities in pay and what this means in America -- getting to heart of the question, "How much is enough?"
Executive Pay Reform: Likely Consequences and Ethical Issues >>
Dr. Ella Mae Matsumura and Mr. Jae Yong Shin of the University of Wisconsin-Madison discuss intended and possible unintended consequences of some recent calls for reform of U.S. executive compensation and related corporate governance structures in publicly traded companies, which are subject to rules of the relevant stock exchange and the SEC. They first describe the general structure of U.S. executive compensation, and then describe some criticisms of executive compensation. They then draw on academic research to discuss likely intended and unintended consequences of some widely proposed reforms, and conclude by discussing ethical issues associated with executive compensation. Read article >>
Do Executives Who Prefer Exorbitant Salaries Downplay Ethics? >>
Dr. Diane Swanson, Kansas State University, and Dr. Marc Orlitzky, The University of Auckland Business School, discuss the findings of their research linking values and salary preferences of business executives. They show a correlation between the executives' preferences for a highly stratified distribution of organizational income and an aversion or reluctance to account for ethical values in their decision making. They also suggest that business schools may be partially responsible "by reinforcing a narrowly amoral self-interest in the minds of students that serves as a rationale for ignoring or downplaying their ethical responsibilities to others." They recommend the need for continuous oversight, transparency and accountability "by screening executive candidates for a relatively equitable approach to compensation structure as well as business education strong in ethical analysis."
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Not Squaring the Circle: An Assessment of, and Some Suggestions for, the SEC's Proposed Compensation Disclosure Regulations >>
Mr. Paul Hodgson, Senior Research Associate, The Corporate Library, is widely considered one of the foremost authorities in the field of compensation. This special report is in response to the January 17, 2006 open meeting of the Securities and Exchange Commission. He discusses, in detail, The Corporate Library's position that "while there are problems with the proposed regulations, they are, in fact, easy to correct, and any problems are far outweighed by the enormous leap forward in disclosure that these regulations will present."
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Five Trends Driving Change in Executive Compensation Programs >>
Mr. Joe Mallin, Managing Director, Pearl Meyer & Partners (Atlanta), one of the nation's leading compensation consultants, discusses five trends that will be key considerations in how companies approach the design and delivery of compensation for their most senior executives. They include: New Stock Vehicles Become Drivers of Equity Value, The Veil is Lifted on Proxy Pay Disclosure, Executive Contracts Get Ready for Their Close-Ups, Tally Sheets Become Required Reading, and Board Processes are Formalized.
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Communicating About Executive Compensation: Managing the Sticky Topic of Money >>
Mr. J. R. Hipple, a consultant in reputation management and member of The Southern Institute's Board of Directors, contends that with new reporting rules proposed by the Securities and Exchange Commission (SEC), "the worst thing a company can do is to pretend that multi-million dollar compensation doesn't exist, especially with employees." Wise companies need to prepare to communicate to its stakeholders about its executive and directors compensation. This will serve "to create greater trust and understanding with investors, the public and, perhaps most important, employees." Read article >>
CEO Compensation as an Ethical Issue: When Does it Cross the Line? >>
Mr. Steven Spires, Senior Vice President, Managing Director of Lee Hecht Harrison and member of The Southern Institute's Board of Directors, challenges the arguments and ethical controversies about the high sums paid for CEOs and asks readers to think about the value CEOs add to the company. He suggests "that failure to define values that drive purpose and compensation may well reveal potential ethical failure." Read article >>
Trying to Live on Less in a Society that Requires More >>
Mr. Bill Bolling, Executive Director of the Atlanta Community Food Bank, received The Southern Institute's 2005 Ethics Advocate Award for his work that has led businesses to provide for the poor. He shares a personal account of his life and work at the Atlanta Community Food Bank. He explains the alarming trend he has witnessed from the perspective of the working poor, who at one time, through hard work and perseverance, were able to provide a home and plenty to eat, to a new type of working poor unable to barely survive from day to day. He then suggests that disparities in pay between the richest families and those families whose children go without basic necessities are a reflection on our national values. Read article >>
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