the ethics of compensation systems

Perhaps, the application of behavioral economics alongside conventional utility maximization finance theory may improve compensation schemes (Harris and Bromiley 2007, p. 352). Judging the ethics of compensation practices should start with its efficiency and fairness . Learn about:- ADVERTISEMENTS: 1. Formalized compensation goals serve as guidelines for managers to ensure that the compensation system achieves its intended purpose. This view suggested that only economic considerations matter for A Model Capturing Ethics and Executive Compensation, The Effect of Cognitive Moral Development and Supverisory Influence on Subordinates' Ethical Behavior, Cognitive-contingency theory and the study of ethics in accounting, Economic efficiency: A paradigm for business ethics, Multiple Stakeholder Judgments of Employee Behaviors: A Contingent Prototype Model of Dishonesty, Ethical leaders: An essay about being in love, From the Marketplace to the Dinner Plate: The Economy, Theology, and Factory Farming, A quick justification for business ethics, A Cross-Cultural Investigation of the Ethical Values of Consumers: The Potential Effect of War and Civil Disruption, Innovation and Ethics Ethical Considerations in the Innovation Business. Select data courtesy of the U.S. National Library of Medicine. Despite negative public opinion, the upward trend of executive compensation has not abated. Business Week, April 15, (http://www.businessweek.com/magazine/content/02_15/b3778012.htm). 17, no. and imposed upon the least powerful which . For many years, researchers viewed pay systems as an efficient way to bring market-like labour exchanges inside organizations. Public corporations are complex entities that benefit society in their generation of wealth for shareholders, provision of employment, and production of goods and services for consumption. Perceptions of injustice regarding excessive compensation practices can have adverse effects on employee performance, commitment, morale and organizational citizenship behavior (Neeley and Boyd 2010, pp. 4, pp. But changes to benefits should be considered during agreement negotiations or renegotiations so that changes can be considered in the context of the cost of the entire package. Journal of Business Ethics 52, 149152 (2004). (The higher the coefficient, the more unequal the distribution (Bernanke, Olekalns and Frank 2011, pp. 26, no. Compensation systems are an integral part of the relationships organizations establish with their employees. O'Reilly, C. A., III and J. Pfeer 2000, Hidden value: How great Companies Achieve Extraordinary Results with Ordinary People (Harvard Business School Press, Boston). Ethics in the transnational corporation; the moral buck stops where? 19, no. Compensation systems are an integral part of the relationships organizations establish with their employees. Take Estelle*. 4, pp. Journal of Business Ethics The HR managers can answer all these equity issues in a number of ways. A deal is a deal! Browns and Huber: 1992, Journal of Applied Psychology. Find any of these words, separated by spaces, Exclude each of these words, separated by spaces, Search for these terms only in the title of an article, Most effective as: LastName, First Name or Lastname, FN, Search for articles published in journals where these words are in the journal name, /lp/springer-journals/the-ethics-of-compensation-systems-GLKI0vAFjb, When trust matters: The moderating effect of outcome favorability. 2023 DeepDyve, Inc. All rights reserved. This research study looks at the impact of organization culture on compensation and . Professionals must recognize and effectively manage conflicts of interest inherent in compensation changes. 89-90). 1686-1705). 381-391, Purcell, N 2011, Heads I Win, Tails You Lose- The Need to Reform Executive Compensation, Journal of International Business Ethics, vol. External equity defines the equivalence of a companys job pay rate in relation to other companies. The Essay Writing ExpertsUK Essay Experts. Bonuses, stock options and restricted stock function, attempt to converge the interests of executives with shareholders. For many years,. Goizueta was awarded $1 million in restricted stock (Kay and Robinson 1994, p. 26). This leads to increases in compensation for individual executives and facilitates system-wide upswings in executive pay (DiPrete, Eirich, and Pittinsky 2010, pp. In practice, many big corporate houses face the problem of pay inequities. There are multiple ethical issues with executive compensation. An analysis of 903 U.S. corporations between 2007 and 2010 finds the number of high-compensating, low-performing firms rose at a substantial rate (Lin, Kuo and Wang 2013, pp. 38-39). Read More. 82, 434447. A Moral and Economic Defense of Executive Compensation. With respect to Employment Verification, current and former DHS . Require these words, in this exact order. Applying Utilitarianism: Are Insider Trading and the Bailout of GM Ethical? 21, 8489. The Kellogg Institute for International Studies, part of the University of Notre Dame's new Keough School of Global Affairs, is an interdisciplinary community of scholars that promotes research, provides educational opportunities, and builds linkages related to democracy and human development. Executive Pay and Legitimacy: Changing Discursive Battles Over the Morality of Excessive Manager Compensation. 367-386, Bernanke, B, Olekalns, N, Frank, R 2011, Principles of Macroeconomics, McGraw-Hill Australia, North Ryde, Blair Smith, E, Kuntz, P 2013, Top CEO Pay Ratios, Bloomberg, published 30 April 2013, accessed 5 December 2014, < http://go.bloomberg.com/multimedia/ceo-pay-ratio/>, Blackburn, S 2014, The Oxford Dictionary of Philosophy, (2nd revised ed. Southwest Airlines: If Success Is So Simple, Why Is It So Hard to Imitate? Compensation management is the discipline for determining employees' appropriate pay and benefits. The Awards are an annual recognition of the influential work carried out by think tanks across the globe. An ethical perspective on CEO compensation. Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana, 46556, USA, You can also search for this author in . However, as representatives of shareholders, directors do have a moral duty to ensure decisions enhance operational and strategic corporate value. 2, pp. In order to promote a dialogue between the various interested groups as much as possible, papers are presented in a style relatively free of specialist jargon. For many years, researchers viewed pay systems as an efficient way to bring market-like labour exchanges inside organizations. Can the manager participate in the program? Disclaimer: This is an example of a student written essay.Click here for sample essays written by our professional writers. These include mandated disclosures in proxy statements, disclosures of perquisites, provision of details regarding share options granted in summary compensation tables, and the recent Dodd-Frank Act (Murphy 2012, pp. Generally, the managers are paid on the basis of week, month or year while the payment of blue collar workers is settled daily. Fishman, C: 1999, 'Sanity, Inc.', Fast Company The major part of the pay plan consists of time based pay. This view suggested that only economic considerations matter for understanding how compensation systems effect organizations and their employees. 3,000 new books annually, covering a wide range of subjects including biomedicine and the life sciences, clinical medicine, *You can also browse our support articles here >. 1671-1712, Harris, J, Bromiley, P 2007, Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation, Organization Science, vol. ), first published in print 2008, first published online 2008, current online version as of 2014, accessed 8 January 2015 from , Blinder, A S 2009, Crazy Compensation and the Crisis, The Wall Street Journal, published/updated 28 May 2009, accessed 10 December 2014, , Borland, J 2013, Microeconomics: Case Studies and Applications, 2nd edn, Cengage Learning, South Melbourne, Bourke, L 2014, Critics of Australia Posts decision to sack 900 staff questioning CEO Ahmed Fahours $4.8 million salary, Australian Broadcasting Corporation, published 11 June 2014, accessed 9 December 2014, , Calhoun, C (ed.) The research also suggests that there is the tendency among employees that, those who conduct unethical practices must be handed over harsh punishment. 4. Distributive justice examines the dispersion of material and immaterial resources, including social, economic and cultural capital in a society, and the rationales for certain inequalities (Calhoun 2002; Blackburn 2014). 42, 558583. For local government organizations, compensation costs are still a significant portion of overall costs and for that reason, are constantly under public scrutiny. Thus, an HR manager should ensure external, internal and procedural equity in order to improve ethics on compensation and incentive issues. A sufficiently high compensation for CEOs and senior executives is therefore, justified. Anyone you share the following link with will be able to read this content: Sorry, a shareable link is not currently available for this article. The provision of large executive pay packages despite poor performance and in some cases unethical behavior inherently damages the linkage of interests between shareholders and management that incentive programs are supposed to provide. 25-33, Kothari, V B 2010, Executive Greed, Palgrave Macmillan, New York, Lin, D, Kuo, H-C, Wang, L-H Ming 2013, Chief Executive Compensation: An Empirical Study of Fat Cat CEOs, The International Journal of Business and Finance Research, vol. Excessively high executive compensation linked to operational goals, induces unnecessary risk-taking and increased probability of unethical, possibly unlawful behavior. Individual equity defines the equivalence of an individual pay in relation to the earnings of his co workers for the same kind of job in a company, also in relation to respective job performance. The beneficiarythat is, the managersometimes is the one who is more knowledgeable, skilled, and, shall we say, savvy. . Applying virtue ethics: the Rajat Gupta case, http://go.bloomberg.com/multimedia/ceo-pay-ratio/, http://www.wsj.com/articles/SB124346974150760597, http://www.abc.net.au/news/2014-06-11/critics-question-australia-post-ceos-multi-million-dollar-salary/5514682, http://www.flinders.edu.au/sabs/business-files/research/papers/2000/00-08.doc, http://www.dailymail.co.uk/news/article-2856908/The-91-BBC-executives-paid-Prime-Minister-Eleven-including-Director-General-BBC-One-controller-head-radio-earn-100-000-Cameron.html, http://www.gallup.com/poll/120872/americans-favor-gov-action-limit-executive-pay.aspx, http://www.rep.routledge.com/article/L015, http://www.epi.org/publication/ceo-pay-continues-to-rise/, http://www.oecd.org/social/income-distribution-database.htm, http://www.theguardian.com/money/2014/dec/05/save-jobs-numbers-companies-big-salaries-perks-executives, http://plato.stanford.edu/entries/kant-moral/#CatHypImp, http://plato.stanford.edu/entries/ethics-deontological/, http://online.wsj.com/articles/SB123375514020647787, http://www.economist.com/economics-a-to-z/r#node-21529810, Ethics & Trust in Finance 9th Global Prize. Provided by the Springer Nature SharedIt content-sharing initiative, Over 10 million scientific documents at your fingertips. 527-544, Weisman, J and Lublin, J S 2009, Obama Lays Out Limits on Executive Pay, The Wall Street Journal, published 5 February 2009, accessed 7 December 2014, , Winkelvoss, C M, Amoruso, A J, and Duchac, J 2013, Executive Compensation at Banks Receiving Federal Assistance Under the Troubled Asset Relief Program (TARP), Allied Academics International Conference, Academy of Legal, Ethical and Regulatory Issues, Proceedings, vol. This (faulty) connection is said to align the interests of principles and agents (Lin, Kuo and Wang 2013, p. 28). Brockner, J.; Siegel, P. A.; Daly, J. P.; Tyler, T.; Martin, C. Moral virtues, fairness heuristics, social entities, and other denizens of organizational justice. Across the globe Trading and the Bailout of GM Ethical guidelines for managers to ensure decisions enhance operational and corporate. 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