Are top executives paid too much? A study of CEO compensation revealed that CEO bonuses rose considerably—from 20 percent to 30 percent—even at companies whose revenues or profits dropped or those that reported significant employee layoffs. Such high pay for CEOs at underperforming companies, as well as CEO compensation at companies with stellar results, has raised many questions from investors and others. The highest gap in pay was in 2000. CEO pay at the largest U.S. firms was 376 times higher than that of average workers. The gap has shrunk to only 271 times higher in 2016, but that is still a lot higher than the 59-to-1 ratio in 1989. The Securities and Exchange Commission (SEC) now requires public companies to disclose full details of executive compensation, including salaries, bonuses, pensions, benefits, stock options, and severance and retirement packages.
Even some CEOs question the high levels of CEO pay. Edgar Woolard, Jr., former CEO and chairman of DuPont, thinks so. “CEO pay is driven today primarily by outside consultant surveys,” he says. Companies all want their CEOs to be in the top half, and preferably the top quarter, of all CEOs. This leads to annual increases. He also criticizes the enormous severance packages that company boards give to CEOs that fail. For example, Carly Fiorina of Hewlett-Packard received $20 million when she was fired.
Using a web search tool, locate articles about this topic, and then write responses to the questions in the Ethical Dilemma section below. Be sure to support your arguments and cite your sources.
Ethical Dilemma: Are CEOs entitled to increases in compensation when their company’s financial situation worsens, because their job becomes more challenging? If they fail, are they entitled to huge severance packages for their efforts? Should companies be required to divulge all details of compensation for their highest top managers, and what effect is such disclosure likely to have on executive pay?
Sources: U.S. Securities and Exchange Commission, “SEC Adopts Rule for Pay Ratio Disclosure,” https://www.sec.gov, accessed September 21, 2017; Jeff Cox, “CEOs Make 271 Times the Pay of Most Workers,” CNBC, https://www.cnbc.com, July 20, 2017; Irv Becker, “Why CEOs Aren’t Overpaid,” Fortune,http://fortune.com, June 11, 2017; “CEOs are Overpaid, Says Former DuPont CEO Edgar Woolard Jr.,” PR Newswire, February 9, 2006, http://proquest.umi.com; Elizabeth Souder, “Firm Questions Exxon CEO’s Pay,” Dallas Morning News, December 15, 2005, http://galenet.thomsonlearning.com; “Weaker Company Performance Does Not Seem to Slow CEO Pay Increases,” Corporate Board, September-October 2005, p. 27, http://galenet.thomsonlearning.com; “What Price CEO Pay?” The Blade (Toledo, Ohio), January 20, 2006, http://www.toledoblade.com.
