The wage disparity between managers and workers is immoral because employees think the money that they are paid for the job they are expected to do is unfair. Some executives earning excessive sums of money typically linked to their results are broken compensation schemes, while low level workers earn compensation that hardly holds them above the poorer level (Milkovich et al. 2002). All staffs including CEOs ought to be rewarded depending on company’s ability to pay, by labor market conditions and the necessities of the jobs they carry out as well as how well they perform. Job evaluation systems like the point approach, ought to be utilized to ascertain the compensation ranges for CEOs. Apparently, a CEO will attain several points for such compensable aspects as financial and as supervision responsibility. Thus their compensation will be higher than others staffs. However, their compensation will be based on reasonable pay factors instead of the power relations amongst members of the board.
What factors justify the average rate of pay for a CEO? What factors make the average rate of pay for a CEO unethical and/or unfair?
The advocates of high pay of CEOs claim that they are worth every single money is paid to them since they create wealth for shareholders. It is claimed that every person is playing the fool’s game if the CEOs’ compensation is not tied to the returns of the shareholders, thus making it appear fairly rational as well as reasonable. Alignment of the interests of CEOs and shareholders can easily be the best solution to make sure the organization is performing well. Also, other factors that contribute to high pay of CEO include the level of development of a country, development of the equity market, authority relations and social order, employment market forces and collective rights empowering labor (Bloom, 2004).
High CEO pay violates principles of fairness and justice in the following ways:
Organizations which are giving their CEOs monetary rewards through compensation packages are always involving in accounting practices as well as business that is unethical by giving high sums using non-audited earnings to identify the amount or type of the compensation. CEOs receive high payments even if their the stock of the organization is reducing in value and the organization is suffering from loses, neither is it indicating growth. Executives can receive salaries which neither accurately reflect the organization’s financial position nor actual earnings, thus, involving in unethical accounting practices.
Companies are not needed to reveal their target levels particular to any qualitative or quantitative performance associated aspects regarded when calculating the payment. It may result in unethical decisions.
Organizations calculate their bonuses on the basis of attainable goals and unaudited earnings instead of on the earnings existing on the audited GAAP financial statements. It is unethical since it does not mirror actually how the organization performed (Milkovich et al. 2002).
If you believe that the disparity in pay between CEOs and the typical worker is unethical, what recommendations would you suggest to make pay more fair or ethical? The pay gap between CEOs and workers will not improve unless companies make an effort to make wages fair. Examples of things that organizations can do to reduce the pay gap include:
Cap executive salaries: for a number of organizations, eradicating the pay gap might be impossible, however introducing a salary cap may assist in preventing the gap from growing broader. Capping salaries indicate to the employees at all levels that the company cares as well as values them. Thus, employees will be satisfied with their jobs.
Be transparent: this year the SEC has created new rules that will need the organizations to reveal the ratio of median worker pay to chief executive officer pay, however before that the employers ought to begin being transparent about salaries. Transparency permits staffs to view the probability for growth within the company. The formula used to determine salaries and the figures open the door for staffs to think about what they are required to do for their salaries to also rise (Bloom, 2004).
Invest in learning and development: experienced, skilled workers will earn more compared to less-skilled employees, although the employer may provide training and development to assist them to boost their value. More skills imply opportunities and eventually more salaries for employees. Use tools such as YouWorth to put an emphasis on the worth of professional development which calculates how much practitioners are worth on the basis of their work history, education as well as skills.
How does this disparity compare to that of CEOs and workers in countries outside the U.S.?
The highest chief executive officer payment has traditionally been in the nations of the West with the US topping the list. The compensation that the CEOs in the United States receive is double that of their international counterparts. However, that is actually like comparing oranges to apples since organizations in the Unites States operate dissimilarly from other companies in the world, specifically with regards to corporate governance.
Bloom, M. (2004). The ethics of compensation systems. Journal of Business Ethics, 52(2), 149-152.
Milkovich, G. T., Newman, J. M., & Milkovich, C. (2002). Compensation (Vol. 8). T. Mirror (Ed.). New York: McGraw-Hill.