s from top executives, demanding to be compensated with better terms. In this blog, I examined a post entitled “Shameful.” by Andrew Crane and Dirk Matten, two business professors in York University, Toronto, who compared the idea of corruption in poorer countries to executives demanding additional compensation with regard to Obama’s $500,000 mandatory salary cap proposal. Next, I responded to a post entitled “So, you really can’t manage on half a million?” by Lauren Bloom, founder and CEO of Elegant Solutions Consulting, where she heavily criticized on the executives’ threat against Obama’s limit on their salary. My responses to the posts and links to the two blogs can be found subsequently.‘Shameful’.
Comment
The example brought about with the corruption perception index is a very stimulating idea. How shameless it is for bankers to take home bonuses from bailout funds financed by the government, which came out of taxpayers’ pockets, when the bankers were the ultimate culprit of their companies’ failure. You mentioned, “This ‘height of irresponsibility’ (Obama) will ask for new rules for the game. Obama will hardly avoid addressing this problem of executive compensation.” Obama certainly took a firm stance in the issue fairly swiftly. He imposed a mandatory salary cap of $500,000 a year for top executives who resides in companies that receive funds from the bailout plan, whereby additional compensation to come in the form of stock.
I agree completely with the idea that, “Being rewarded for success – fine. But more often than not, the link between stock prices and individual managers’ performance is more than tenuous.” Yet, as this compensation issue continues to unfold, it is all the more upsetting, and shocking, to read news reports that these executives are actually exploring ways to go around the salary cap that Obama imposed. They threaten to pull out stakes and resign from their positions if the Obama administration formalizes those limits. Honestly, how much more shameless can these executives be? In fact, most of my friends who just graduated make around $50,000 annually as they enter the workforce, one-tenth of the proposed half-million dollar annual limit. To think these top executives would be about to find a position with better pay in this market is like kids believing that Santa exists.
I believe people who should be running corporations should not be these bankers who seem to be motivated solely by the instrumental satisfaction of attaining great financial compensation. There are abundant amount of qualified people who are willing to put in a hard day’s work for the opportunity to be part of a multi-billion dollar, bulge-bracket corporations, for reasons that go beyond financial satisfaction. These people understand that there are times when money cannot trade for satisfaction. They understand that past a certain threshold, money provides little satisfaction. What they want is to make a difference in the world. And I believe these people, who have a far more profuse and concrete prospect of the company, should be the very ones running multi-billion dollar corporations. Perhaps this issue will have a cleansing effect in the highest reaches of corporate power, as the greedy step down to make room for the virtuous.
So, you really can’t manage on half a million?
Comment
I am in complete agreement with your position in this compensation issue. Like you said, “running your business into the ground was a firing offense, not a reason to demand a higher salary.” I was doing some research on the web, and I came across the Stakeholder Theory. Allow me to share it here with you. The Stakeholder Theory is a business ethics theory that addresses the morals and values in managing an organization. In general, it suggests that when making decisions, whether major or minor decisions, companies should consider the interests of its stakeholders – that is, the interests of individuals who have invested in the fortunes of the company. If we adhere to this theory, all taxpayers are now stakeholders of companies which received bailout funds from the government. Those top executives who are compensated with the bailout funds should be reporting to the taxpayers. And by demanding for more compensation, they are being irresponsible and inconsiderate with the interests of their companies’ stakeholders.
Without a doubt, those top executives whose morals are blinded by attaining the greatest possible financial rewards should be heavily criticized. And I agree to Obama’s $500,000 mandatory salary cap proposal. However, I suggest Obama to make amendments to the proposal. As with the current proposal, a $500,000 mandatory salary cap for top executives might put pressure on the recruitment of talented individuals that are capable to lead corporations out of the financial crisis. In addition, potential investors might be reluctant to lay their money on corporations without a sound management team. This in turn, transfers the pressure to taxpayers, as the government continues to bailout companies with funds from taxpayers. I believe executives should be rewarded by success, possibly in financial terms. Hopefully, the economy turns around soon enough, and my suggestion is that those executives who have the ability to rescue their firms out from the turmoil should be rewarded with a certain percentage of the company profit, while the rest goes to repaying taxpayers. This sounds more like a fair deal, right?
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ReplyDeleteReading your blog makes it clear that you are both well informed on and deeply moved by the ethical implications of the current recession and bailout. Your introductory paragraph provides both a clear and succinct summation of the background information necessary to understand your argument. It also clearly acknowledges the tremendous emotion surrounding the bailout as you bring in the “heated discussion” about the executives “running away” with the taxpayers’ money. You then manage to very quickly bring the focus from this broad issue to a focus on a single action taken by President Obama and provide a great link to a high quality source on this topic. I feel that you artfully intertwine your analysis and opinion with strong word choice and presentations of solutions that you find satisfactory. You also chose your quotes well, injecting carefully chosen words from the author that are substantial enough to reflect the post’s argument and provide a strong starting point for your own voice. In your second response I like the way you clearly delineate the problems that may arise as a result of the executive salary cap. You make it very easy to follow along with your logical progression, and in doing so clearly demonstrate how this builds upon the arguments you are commenting upon. I find your use of Shepard Fairey’s portrait of Obama as the bringer of “change” to be wonderfully ironic, as it was intended to promote a positive outlook, but the results of his actions may prove more devastating as you illustrate.
ReplyDeleteWhile I feel that overall this was a very strong post, I would like to offer some constructive criticism. In your first response you say “the bankers were the ultimate culprit” and later deride them for being “shameless” in choosing to resign, and finally praise the potential “cleansing effect” this will potentially create. It seems as though you contradict yourself in these statements, and perhaps a clarification of how these points fit together would make the connection more apparent. In your second response I have to question your choice to include a link to Wikipedia in your explanation of “stakeholder theory.” While the link does provide good information, it is not considered a very academic of reliable source, and I think it would have been a better choice to choose a different website as evidence. Overall I think you did a magnificent job in making an extremely complicated topic easy to follow and enjoyable, though the topic may not be, to read.