Take a stand on the issue of whether CEOs compensation is too high. (You may also use material from the Wells Fargo case in Chapter 1 to help explore this question.) As a group, discuss whether CEO compensation is justified or not. Be sure to base your reasoning on the ethical frameworks covered in class: utilitarianism, rights and duties (principles) or virtues.
Do we support CEO pay?
Consequence based (utilitarianism) – RickyUtilitarianism refers to the philosophical doctrine that maximizes the benefit of the majority. For a company, capital, inventories, employees, and even CEO are factors of production to produce profits for stockholders and investors. As the article, “Are CEOs Paid Too Much” mentioned that “the highest levels of compensation are achieved through stock options,” a high stock price also indicates a higher utility for stockholders and investors. At this point, the goals of CEOs are aligned with the goals of stockholders and thus the CEOs have the incentive to maximize the stock price, which “encourage CEOs to take short-term ways to boost stock prices”, such as by laying off employees and increasing working hours. With a utilitarianism approach, CEOs’ actions are justifiable once the increases in utilities of stock price outweigh the loss of utilities of employees laid off. If the expense of pay-over-time is less than the extra productivity of driving employees working crazy hours, utilitarianism says it’s moral. Once an employee is tired of working extra hours, it becomes the one who gets laid off. The problem with utilitarianism is that it ignores the needs of employees as human beings who also need to be heard and considered but solely treats them as the factors of production which drives the firms to achieve greater profits. By paying CEOs a high compensation largely depends on the stock option, it encourages the CEOs to solely focus on the outcome of achieving higher profits at the expense of a portion’s employees’ well-being and putting employees’ well-being as part of their calculation of Cost-Profit-Analysis. Principle Based (deontological)Looking at CEO pay from the perspective of a principle based ethical framework we can come to a similar conclusion. The main difference between deontological ethics and utilitarianism is that it looks towards means and not simply the end result. Furthermore, applying principles and rights to this framework puts the assumption that all humans are awarded basic rights that all must abide by. If we apply this to the situation of high CEO pay we see many things. First off, these extremely high salaries as mentioned in the Opening Decision point of the textbook amounting to nearly 900 times the pay of a $16.50 hourly wage employee must come from somewhere. The means to allow a CEO to receive such a pay must imply that these resources that could have gone towards the company or other employees went to the CEO. Consequently this also violates the idea of basic human rights to be able to survive. That is to say, by denying workers a basic living wage so that the CEO can have their huge bonus is violating the idea that every human has the fundamental right to be treated with respect. Simply put, CEOs are using these workers as means to their own end, perhaps following a more egoistic approach by following one’s own self interest. Furthermore, an argument could be made that the CEO is using these employees as tools in order to boost their own bonus. While salary makes up a portion of CEO, the majority of it comes in the form of stock options. The intention of this is to align the values of the CEO with the company so as to motivate them to push for company wide success. However this has resulted in many CEOs looking towards short term profits often at the expense of their workers. These actions are in direct conflict with the ideas of the 18th century philosopher that famously said that as humans we have the “fundamental duty we all have to treat each person as an end in themselves and never only as means to our own ends’ ‘. Thusly, we argue from a principle based ethical point of view that the exorbitant CEO pay is unethical
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