What’s Wrong with Executive Compensation?

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Journal of Business Ethics (2009) 85:147–156 DOI 10.1007/s10551-008-9934-6 Ó Springer 2008 What’s Wrong with Executive Compensation? Jared D. Harris ABSTRACT. I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve. KEY WORDS: executive compensation, distributive justice, pay disparity, incentive alignment Introduction Few academic theories have been adopted as widely…show more content…
If a highly paid CEO is considered greedy simply based on the absolute magnitude of his or her total pay, at what magnitude does such pay become unobjectionable? What is the standard level of compensation that is morally acceptable? What absolute yardstick is to be used? These are intractable questions without systematic, rigorous answers. Is $30 million too much? How about $500,000? The answer depends largely on one’s personal sentiments that derive mainly from one’s own frame of reference, and so the challenge in answering such questions is that ultimately an objection to the absolute magnitude of CEO pay either reveals itself to be self-referential (in which case objecting to the CEO’s greedy pay package is indistinguishable from one’s envy of it) or it collapses altogether into a slightly more sophisticated objection. Subramaniam, 2001), what, exactly, is the problem with executive pay? Are CEO pay packages simply too grossly large on some absolute scale, driven by unfettered greed beyond the bounds of what is ethically reasonable? Or is the real problem the growing disparity between executive pay and the wages of entry-level workers? Alternatively, is there a problem with CEO pay from the standpoint of distributive justice, or fairness? Or is the problem simply that executive compensation does not work properly – that it does not provide the proper incentive alignment suggested by the underlying theory? I broadly explore these questions by examining
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