Case Summary
In 1993, Michael D. Eisner of Walt Disney fame received $203 million as executive compensation. Although this award was inflated by Eisner's exercise of stock options, many examples of compensation in millions and tens of millions raise questions on how CEOs should be paid. Critics dispute that CEOs are deserving of their pay. CEOs downsize companies or perform badly, yet continue to draw a substantial salary. Unlike low level managers, it seems there is no formula for executive compensation. The disparity between the executive pay in US and that of in other industrialized nations is great, furthering the belief that there is no rational (?) basis for compensation. Among sports and entertainment figures, there exists a feedback mechanism for pay ? bad performance leads to reduced earnings. Graef Crystal (c.f Boatright, 2007) argues that executives do not face pay discrimination because directors are bad negotiators [what is the linkage between the directors being poor negotiators and the CEOs not being paid what they are worth? Even if you are writing an abstract ? the sentences must convey some meaning.]. It has also been argued that monetary motivation alone will not attract the crème-de-la-crème into corporate management; other occupations demonstrate the provision of stronger intrinsic motivation. In conclusion, the case against high executive compensation is simply because, without establishing pay standards for CEOs, many firms do not punish bad performers nor duly reward good performers.
Ethical Issues Involved
Are US executives fairly paid? Do they deserve the pay they are receiving? Is executive compensation distributed in a just way? How should executive compensation be distributed so that it is just? This report s ...