BUSINESS EXECUTIVE PAY

Are business executives (VPs, CFOs, and CEOs) paid too much? Is the practice justifiable?

Are business executives (VPs, CFOs, and CEOs) paid too much? Is the practice justifiable?

Introduction

The purpose of this paper is to analyze and discuss a debatable concern that either the extraordinary pay of business executives (VPs, CFOs, and CEOs) is justifiable or it is an unethical practice violating the employee rights. According to supporters of the compensation offered to business executive, business executives are paid well, according to those observers, because they must bear almost single-handed responsibility for the success or failure of an entire company.

People who are concerned about the gap between the highest and lowest paid workers in the U.S. often cite figures about the salaries and other compensation paid to chief executive officers (CEOs) at U.S. companies. CEOs at large companies can earn multimillion salaries and receive many more millions through the use of stock options. (Stock options allow executives to buy stock in their companies in the future at a certain fixed price. That price is often far lower than the market price of the stock when executives exercise the options, thus allowing the executives to make a profit when they sell the stock).

Nevertheless, Critics have questioned whether such huge compensation packages are fair, particularly at companies that are not doing very well or are reducing their workforce. United for a Fair Economy says that such a huge gap between CEOs and common workers is harmful to worker morale. The group and other critics say that CEOs who receive large amounts of stock options become focused on increasing stock price in the short term, leading them to make layoffs or take other cost-cutting measures rather than focusing on the long-term success of the company.

Controversies Aimed at Business Executive Pay Standards

Each year, Business Week magazine conducts a survey of CEO compensation at large public companies in the U.S. In its April 1999 survey of 365 companies, the magazine found that the average CEO made some $10.6 million in 1998, an increase of 36% from 1997. In 1998, pay for the average white-collar worker increased less than 4%, and pay for blue-collar workers went up about 2.7% (Conyon, 2011). The average CEO's earnings were 419 times greater than those of the average blue-collar worker.

According a September 1999 study by the Boston, Mass.-based group United for a Fair Economy, CEO compensation grew 481% between 1990 and 1998. If the pay for an average production worker had increased at the same rate as CEO pay during the 1990s, the average worker would make $110,399 and the minimum wage would be $22.08, according to the study. Besides CEOs, executives in other top corporate positions, such as chairman of the board of directors, president and vice president, are often awarded large and controversial compensation packages as well. Five of the highest-paid executives in Business Week's survey, for example, were not CEOs (Conyon, 2011). Among those was Sam Wyly, chairman of Sterling Software, ...