The Debate Over CEO Compensation

1349 WordsJul 8, 20186 Pages
This paper will discuss the reasons why CEOs are not being overpaid. It will apply the utilitarian ethical principle to many a few aspects to CEO compensation and whether or not it is justifiable for such pay. The paper will look at whether or not their performance is justifiable for the pay because they play such a big role in the livelihood of the company along with the principle agency theory and how it is being addressed for the benefit of the shareholders and others involved with the company, the supply and demand of the CEOs, and the paper will describe the comparison of other professions to help link the idea of CEOs being fairly compensated. CEO compensation has been a heated debate for many years recently, and it can be argued…show more content…
The fact that CEOs do not stay with a company very long also factors into the supply and demand of the CEO position. With CEO positions being opened up all the time that means there is a high demand for such positions, but they must be filled with highly trained professionals with years of experience, something a lot of people do not have to the quality of work needed. So if there is a high demand and a low supply it would mean that the compensation for these high position employment opportunities must equally be high to entice people for the position. A way to counteract the Principal Agent problem would be to increase the liability that the CEO has in the company. If the CEO were not strictly paid on a salary but rather by the performance of the company then the CEO would be better benefited by the success of the company. There are many companies that have realized that and have implemented it into their CEO compensation packages. In an article by Tim Worstall he explains that Apple has taken measures to counteract any possibilities for the CEO to act his/her own personal interest and not of the shareholders or companies interests. Instead of the CEO being compensated for successfully reaching a target set by the Board of Directors, Apple makes the CEO substantially invested in the company, executive officers must own three times their base salary in Apple’s stock (2013). This means that the CEO is now heavily invested in the company and a shareholder, so
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