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When it comes to the intriguing and controversial topic of executive pay, the metaphysical sense of goodwill in business ethics has been a juxtaposition of phenomenal irony for decades. Indeed, it has long been obvious that the average worker's remuneration is well below that of company executive officers, a factor that has contributed greatly to substantial wage inequality even in the twenty-first century (Hong, Li, and Minor 203). Evidence-based evidence shows that the ratio of executive earnings to an ordinary shareholder or employee earnings has been increasing over time, with a ratio of 12:1 in 1960. It rose to 3 5:1 in 1974; doubled to 100:1 in 1995; a figure which increased by 82 units to a wobbling 182:1 in 1998; then finally estimated at 231:1 in 2012 (Rodgers and Gago 201). It is hence apparent that the growth of executive compensation is greater by far compared to the average worker earnings. Despite the public and media outcry to reinstate the business ethics of fair, just, impartial, and proportionate compensation among pertinent stakeholders, the perpetuation of this huge margin of inequality has been on the defensive due benchmarking and referents, and regulatory instruments that are ineffective. Increased executive compensation attracts inevitable challenges in the operational goals, unlawful behavior, and the heightened probability of unethical risk-taking moves that could compromise critical decision making. Even though government used to regulate business intensities, the effects of globalization brought on board a new though the deregulation of business could enable the latter to give back to the society in a better way, a position of goodwill which was later compromised (Rodgers and Gago 201). Elements like bidding for top flight executive officers, captive boards where executives are in entire control of the management without accountability, as well as interlocking directorates which enables executive stakeholders to make mean decisions at the expense of the organizations they lead are the primary factors that compromise business ethics in increased executive compensation at the expense of the common workers, the society, and the business operations.
The conflict of interests between executive members and the shareholders should be eliminated by separating powers between organizations and the managerial autonomy. Executive teams often act for personal gains to maximize personal earnings and this compromises both the shareholders and the business interests (Harris and Bromiley 352). Conflicts could result when executive stakeholders choose not to embrace long-term goals, exorbitantly utilize perquisites, and failure to diversify risk leading to aversion of inherent risks. Significant elements of bonuses, salary, stock options, restricted stock, long-term incentives, and perquisites are often compromised by unethical executive compensations (Hong, Li, and Minor 206). When most American organizations became bankrupt, and business entities dwindled in the corporate world gains, the superstar executive officers who had the talent to streamlining the economy like Jack Welch at General Electric, Michael Eisner at Disney, and, Lee Iacocca at Chrysler, and Lee Raymond at Exxon in the 1970s contributed to the escalation of the executive compensation rates (Harris and Bromiley 356). Furthermore, deregulation and the synergistic cooperation among organizations led to the increased executive rewards across the scale. Furthermore, when companies merged and laid off the executive teams, the severance packages were hefty, which made it the third factor that contributed to the hugely increased executive to ordinary worker compensation ratio.
The element of buybacks since the 1980s has been a significant problem, as it allows for insider trading and price manipulation. Buybacks were incepted following globalization and computer-based business operations, whereby more regulation was perhaps more desirable than before, but the contrary was embraced by the stakeholders, unfortunately. A good example is whereby a rapid price boost for a particular drug can trigger tremendous opportunities for share buybacks that may also create a positive feedback of rising stock prices, and thus greater bonuses and pay rewards for corporate executives. Executives were guaranteed of high earnings when business was thriving, retention bonuses in dwindling gains, and hefty severance packages if they were to exeunt, a situation which occurred in AIG and Nortel when the two organizations experienced crashed stock prices (Persons 410).
Solutions to tame extreme executive compensation and reinstate business ethics would be to encourage executives to retain and reinvest the earnings, rather than downsize and distribute (Persons 413). Awarding executives when businesses do well but also punish then when they lead their ventures into market crises that are avoidable, as well as prohibiting pump and dump activities. Furthermore, shareholders should be enabled to tame the executives by binding major decision making and the farmer`s vote.
Harris, Jared, and Philip Bromiley. “Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation.” Organization Science 18.3 (2007): 350–367. Web.
Hong, Bryan, Zhichuan Li, and Dylan Minor. “Corporate Governance and Executive Compensation for Corporate Social Responsibility.” Journal of Business Ethics 136.1 (2016): 199–213. Web.
Persons, Obeua S. “The Effects of Fraud and Lawsuit Revelation on U.S. Executive Turnover and Compensation.” Journal of Business Ethics 64.4 (2006): 405–419. Web.
Rodgers, Waymond, and Susana Gago. “A Model Capturing Ethics and Executive Compensation.” Journal of Business Ethics 2003: 189–202. Web.
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