Should CEOs be rewarded for failure?
It is commonplace for CEOs of large American corporations to receive huge paychecks, even when the companies they are entrusted to lead are losing market share, cash and share value. If a company does well, how well should the CEO be rewarded? When the company deteriorates, should the CEO be given a substantial increase in pay? Should the CEO be fired -with an eight -figure severance package? Some numbers to think about, in 1965 the average CEO made 24 times the salary of the average employee. In 2005 the average CEO made 262 times the average employee. What do you think is the Ethical solution to this problem?
This post was prepared by Charles Logan. He will be the leader of this post. This topic blogging was started on 8th Tuesday and will be end on midnight of 14th Monday.
To me it is crazy to think of how much more a CEO makes than an average employee, because to me it is the average employee that is making the company successful, not the CEO. I understand to CEOs are to set a vision and try to guide the company to success byh placing the right employees in the right situations, but the CEO is not the one designing the building, designing a car, building a boat, or what have you. When a company is doing poorly then it seems as though the average employees take the fall, while when a company is do good it is because of the CEO. That to me makes no sense. The CEO should be considered an employee and have the same raises, cuts, etc that an avarage employee has.
I agree that CEO should have the same raises, cuts as all employees
It is true that the average employee is doing most of the work, but they need the company and the executives as bad as the company needs them. Many engineers work under contracts from other companies or government entities. It is the man-power, the reputation and the management representatives of the engineering firm that bring in those contracts. The individual engineer would likely not be able to secure that work, therefore his design skills would be wasted without the company itself. Obviously, the company would be worthless without workers as well, so each needs the other equally. That is why both executives and workers should be treated similarly when company does well or does poorly. They are mutually dependent. It may seem like a CEO actually does no work, and sure a low level worker could easily fill in for them for any given week, but it is the responsibility of constantly maintaining the company’s reputation as well as its operations that earns the CEO the bigger paychecks.
If a company does well, how well should the CEO be rewarded?
I think CEO’s should be rewarded when the company does well but on the flip side, they should also be not be rewarded (pay cut) if the company doesn’t do well.
When the company deteriorates, should the CEO be given a substantial increase in pay?
I believe that they are the CEO for a reason, they worked there way up in the company so they should suffer if the company does poorly too. I don’t think it’s right for them to take in all the money when the company is going under.
Should the CEO be fired -with an eight -figure severance package?
I don’t think the CEO should be able to take home an 8 figure severance package. If they were let go because the company wasn’t doing well, then they don’t have any right paying the CEO that much money.
What do you think is the Ethical solution to this problem?
I think every company is different, I think each company has the right to pick their CEO’s pay but I think it should be based on a percentage of how the company is doing. If they company starts losing money then the CEO either is let go or he/she doesn’t make any money.
To answer these questions, you might want to think about how a CEO gets to the point of thinking they deserve a raise when the company is not succeeding. In a start up company, the CEO at the time will not see many profits if any. But with hard work over a few years things start to look up. Profits turn, and the shareholders are very happy. Eventually, with the CEO’s intitial vision and committment, the company seems to get to a point of running itself. That is when a CEO may start to lose perspective, by not re-committing his/herself to the vision and disconnecting with the “little people”. The CEO may start to ignore feedback, or employees may be afraid to give real feedback out of fear. Under pressure from shareholders and the board of directors (which never seems to do anything but monitor the shareholders money-which is not necessarily the only guide for success of failure)the CEO may start to point blame to what he/she considers to be incompetent employees. But who hired the employees? Or they might blame the market, but it is supposed to be the CEO’s job to anticipate the market. The arrogance builds and they tend to believe that “they’re the only one” who knows the business, and he/she deserves to be compensated regardless if the company is making less than $1 for every dollar invested. Hiring and firing is a very important role of the CEO, but when layoffs come, a CEO may believe that they deserve a raise with having to deal with the stress and make the big decisions. To an extent a raise may be justified, but after repeated performance of failure, a CEO must be able to look themselves in the face and decide if they are a “giver” or a “taker” and show a renewed committment to turning the company around by investing education in themselves and training in the employees, as well as possibly taking a pay cut. If a CEO sees a project is not succeeding, then it his/her responsibility to alert the shareholders, give them some if not all of their investment back, and promise that the company has better project investments on the horizon. It will hurt the company monetarily in the short-run, but pleasing the investors will keep them coming back for future projects, even if a project or two does not succeed.
1)When a company does well, how should the CEO be compensated?
Well, I am not a financial expert, but I would have to think that a company needs to set aside enough of its profits to ensure that is can run effectively as if they would not make a cent the first half of the next year. After that, pay out employees bonuses/encentives/perks. If there is money left after that, then the CEO can pull out of that money for the bonus (keep in mind that it is hard to regulate what a CEO pays him/herself because their really is no one above them to regulate it) A good CEO will know when to say when. And the government should not be allowed to regulate this at all ever. People who believe the government should step in, well they are wrong. You something an inch of power and they just want to keep grabbing to see what they can get away with. Besides, who regulates the government? The people? In today’s society, that is an “old wives tell”.
2)When a company does bad, should the CEO get a raise?
If by bad, it is meant the company did not make a profit, then no he/she should suck it up with the rest of the “little people”.
3)Should a CEO get an 8 figure severence package if he/she is fired?
Well, we the “little people”, who will most likely not see that kind of money, don’t think so. But it might be the only thing that keeps that CEO from going to a competitor with company secrets.
4)What is the ethical solution to this problem?
The solution is for everyone to want to be ethical themselves. Regulate yourself. Re-invest in your own education over and over. Reminding yourself of what it was like to once work for a boss. Know how much better it makes you feel when you can give, and the smiles on people’s faces. recognize the joy of a child, and try to seek that exact joy within yourself.—I certainly do not get a sense of joy thinking that a government should regulate compensation. The government already regulates enough of my compensation with taxes.
It is difficult to “hard-wire” the fact that losses occur to the idea that the CEO should not get anything at all. If the CEO was able to make a decision that dramatically reduced losses, for example, I think that he should be rewarded since the good of the business was served. I do not believe that the CEO should receive a bonus that substantially affects the bottom line of the company because, again, the desire should be to sustain the operation for as long as possible.
If the CEO departs for some reason, I do not feel that a severance package should be something that is large enough to affect the financial health of the company. Perhaps there could be some sort of escrow account that is contributed to at a base level annually and, during years of great prosperity, is contributed to more generously…
In the end, the company should be able to survive no matter what, and if the company suffers, the CEO shouldn’t realize any increase in prosperity while the rest of the personnel suffers.
CEOs should be held to the same standard that their workers are. The new theory of pay for performance should apply to CEOs as well as the employees. I think executives should not have a better severance package or benefit package than the other employees. The bottom line that nobody seems to realize, is that in an ijob to to ensure the company maintains the proper direction. He hires in experts to oversee the various departments. The actual workers are the ones reducing costs by working efficiently and taking pride in their jobs. The executives have a nice little plan to increase their salaries by supressing the worker’s pay as much as possible. I know most employees could fill in for their superior when he goes on vacation for a week, but how many supervisors can actually step down and do the work of their employees? Who gives the most value to the company.
chuck L presents another great point.
I obviously have no idea how getting payed at that level works, but I would think that there would be a set salary plus bonuses based on profits. If you have worked your way into a postion such as CEO then you have earned whatever salary is associated with that position. If that is a million times more than the average employee then so be it. If times get tough and the company has to resort to cutting pay, then the CEO should be subject to that pay decrease as well. If a company deteriorates completely then it is ubsurd for the CEO to receive a pay increase. If they are fired then they are entitled to a severance package that is proportional, based on salary, to any other employee who is fired. Basically the CEO should be treated as any other employee. They make more because they have earned their way into a higher position and they get bigger bonuses when the company is making money. However, when the company is doing poorly the CEO should suffer in proportion to the lower level employees. If a CEO is able to give himself a raise, then he should first have to give raises to at least a certain portion of the employees underneath him.
I do not think it is ethical for a CEO of a company to have the power to give himself a raise, vacations on the company, or any monetary benefit. I think Cade brings up a good point is when the board and I am sure in some cases the CEO himself decides to increase pay a certain portion should be given to the employees underneath him. If you t give the employees underneath you more money then you will make him happy and maybe be easier to work with. When the employees see that they are getting money as well then they might look at the CEO’s bonuses in a different light.