Are U.S. CEOs Overpaid?
Is it right to put a cap on the wages top American Chief Executive Officers (C.E.O.) can earn? This paper analyzes the ethical issue of wage caps on extremely high paid C.E.O.'s. It is my opinion, that in our free market society the top C.E.O.'s. deserve what they earn. This essay will begin by analyzing the articles The Care and Feeding of the Truly Greedy: CEO Salaries in World Perspective and The US Executive Pay Model: Smart Business or Senseless Greed. Then conclude with my opinion on the situation.
Lisa Newton believes that in the United States C.E.O.'s. have become grossly overpaid in recent years. The first example she listed in her argument was John Welch C.E.O. of General Electric. Welch received a $21 million dollar performance bonus. Rather than congratulating John for his success Lisa, demonstrates jealousy calling him greedy. Lisa argued that paying C.E.O.’s excessively high wages bankrupts corporations.
Business Week magazine celebrated John Welch’s success, featuring his accomplishments on the front page of their January 10, 2000 issue. In 1996, John Welch increased General Electric’s profits by 15% accounting for a total of $110 billion dollars. He raised the value of the companies’ shares by 56%. In 1999, John doubled the stock value (2000, p.1) A.B.A. Banking Journal also featured John’s success on the front of the Briefing section. In the article, The Secret to Success John attributes his successes’ to the talented people working for him. (2006, p.7) John Welch earned his bonus by earning investors a great deal of money.
General Electric also has a very generous employee bonus structure. G.E. starts by paying workers 5% more than the market rate. General Electric employees receive performance-based bonuses as well. The bonus structure of General Electric employees varies based on position. Managers regularly receive high bonuses to motivate them to create a more productive return (2014). General Electric rewards their productive employees for their hard work increasing the corporation’s profits.
John Welch also uses his fame and fortune to give back to the community. Last year the Annual John Welch Charity Classic rose over $11 million dollars to send kids with cancer to camp (Welch, 2014).
Ira Kay and Steven Rushbrook can appreciate that American C.E.O.'s are entitled to whatever amount of pay they earn. Kay and Rushbrook base their arguments on America’s fundamental position as a free market.
The pay C.E.O.'s receive has risen up to 15% in recent years where the annual inflation rate raised by 3% (Kay, & Rushbrook, 2001, p. 224). Kay and Rushbrook attribute this significant pay raise to the lack of talented C.E.O.’s causing a bidding war. Companies are competing for the best leaders who can generate the highest R.O.I. The C.E.O. also takes responsibility for the company’s success becoming the face of the company. The responsibilities of the C.E.O. are immense. They are responsible for the company’s performance.
The economy has soared alongside the pay top executives receive. There are correlations between the rise of the value of the stock market and the amounts C.E.O.’s are being paid. As the wages and bonuses of C.E.O.’s increased so did the economy. Competitive corporate leadership has a ripple effect on the economy. Our economy depends on corporate profitability, and the corporation’s success is dependent on its leaders.
C.E.O.'s being paid based on performance is becoming a popular trend. Pay based on performance means that if the company performs poorly, the C.E.O. receives a minimal pay for their work but if the company is thriving then the C.E.O. is highly paid. In a pay based on experience structure C.E.O. receive a base pay, bonuses and stock options. C.E.O.'s can also generate loads of earnings for the company in order to receive such high wages. In essence C.E.O.’s pay their high salaries and then some. The example used by Newton trying to persuade the other side of this ethical debate illustrates the points made by Kay and Rushbrook. John Welsh produced a significant increase in General Electric’s profits and share values. Not only did John earn his large $21 million dollar bonus he also generated an increase of $110 billion dollars in profits. He earned that bonus and the bonus his employees received,
In conclusion, my opinion supports the free market which one of the founding principles of the United States. Americans have fought wars to protect our free market from communists. The argument made by Lisa Newton makes her appear to be jealous and greedy. When C.E.O.'s received significant bonuses, they have exceeded expectations, and the companies have benefitted by the C.E.O.'s hard work. John Welch the example that Lisa Newton tried to use to persuade me that C.E.O.'s earning large bonuses are greedy demonstrates the reasons why top C.E.O.'s deserve what they receive. It is my opinion after reviewing both sides of the argument that top CEO’s generate large profits for the company and investors and their large salaries.
References
Bonus for General Electric Co (GE) Employees. (2014, September 27). Retrieved October 1, 2014.
Kay, I., & Rushbrook, S., (2001). The US Executive Pay Model: Smart Business or Senseless Greed. WorldatWork Journal
Live Wire Welch. (cover story). (2000). BusinessWeek, (3663), 71.
Newton, L., (2000). The Care and Feeding of the Truly Greedy: CEO Salaries in World Perspective. Taking Sides: Business Ethics and Society
Streeter, B. (2006). The secret to success. Can you guess it? Hint: Jack Welch knows it. ABA Banking Journal, (12). 7.
Welch, J. (2014). 2014 John Welch Charity Classic. Retrieved October 1, 2014, from http://www.johnwelchent.com/
