Chapter 5: Corporate Governance
Executive Excess Part 2
Run Time: 11:26
Is CEO compensation too high? That was the question put to business students at Babson College. CEO compensation has skyrocketed recent decades going from just 40 times the average person’s salary in 1970 to 500 times today. CEOs including Jack Welch, Michael Eisner, and Dennis Koslowski were all paid multi-million dollar compensation packages during their tenure as CEO.
Some students at Babson College shrug off the excessive pay packages noting that everyone has a chance to reach the top, and those that do should be rewarded. Indeed at least one former CEO, Jack Welch, claims he was simply being paid what the market was willing to pay. According to this laissez-faire approach, CEO compensation merely reflects market forces.
Other people though, are critical, wondering whether the mega pay is really justified. They note that there is a lack of oversight when it comes to CEO pay, and that conflicts of interest abound. CEO pay packages are determined by company boards of directors – boards that are appointed by the CEO.
1. Is it ethical for CEOs to be paid 500 times what other employees earn? Is it ethical for CEOs to accept compensation packages in the millions of dollars?
2. Discuss the potential for conflict of interest in CEO pay. Should a company’s board of directors determine CEO pay?
3. As a shareholder, how do you feel about CEO pay? Is the high compensation of Michael Eisner, CEO of Disney, justified? How about that of Dennis Koslowski? Would you feel any differently if you were a shareholder in Tyco during Dennis Koslowski’s tenure as CEO?
4. Some critics have called for more government oversight of CEO compensation. Do you agree with this?
5. Discuss the ethics involved when a CEO manipulates financial information to influence a company’s stock price. Is this practice acceptable as long as it is legal?
Get Free Quote!
432 Experts Online