This assignment provides you with an opportunity to summarize ethics in financial responsibilities and to evaluate ethical considerations of executive compensation by writing a persuasive essay. In your essay, take a position on the following topics, and support it with evidence. Evidence can be facts, statistics, and quotes from scholarly articles, reliable news sources, or even anecdotal examples from personal experience. You may use any of the readings from this course, or you may find new ones to support your position. At least two pieces of evidence should be used (one for each topic).
- Do you think executive compensation in its various parts (i.e., salary, stock options, severance packages) funded at the current level is unethical? If so, how would you revise the compensation so that it was just? On what basis would you change it? Does the government have a role to play? If so, in what manner?
- Is the Sarbanes-Oxley Act too strict, not strict enough, or just right? Explain.
Your essay should be at least 500 words in length, double-spaced, and written in Times New Roman, 12-point font. Use APA Style to format your citations.
Expert Answer and Explanation
Why Executive Compensation is Unethical
Executive compensation shows unethical nature in its different parts and hence needs to be revised. Regardless of whether or not top managers such as CEOs are performing a good job in delivering companies from different problems or generally in running it, they still get paid a lot of money, and this could limit their ability to execute their roles (McCord, Young, & Weisdorn, 2017). There is the common perception that overpaying a good CEO and underpaying one who is bad does not happen because of the common behavior cultures across organizations in all industries (McCord, Young, & Weisdorn, 2017). For this reason, most of CEOs in the world earn more than a million dollars or are already multi-dollar billionaires.
It is unlikely for companies to determine the contribution of the CEOs and the top leaders in the firm and the workers before concluding about who is responsible for the great growth patterns in organization. In most of the instances, news organizations of firms that show exemplary performance in different industries have headlines that show how the CEO is overworking to deliver the results (McCord, Young, & Weisdorn, 2017). In actual sense, however, some of the companies do not only have the junior workers and management working hard to deliver the organizations to the desired goals, but the CEOs could be the one dragging the company behind through their policy executions that limit even better production. To revise the compensation, I would ensure that the interests of every CEO are aligned strategically to the company’ long term interests. I would also launch in the company some independent compensation committee that could assess the functioning of the different departments and give reports that determine the right levels of compensation.
There is vast evidence that shows that the Sarbanes-Oxley Act is controversial, and requires several changes to be implemented for it to be effective. The act, also called Sarbox or SOX, protects the different organizational investors from some of the possible companies’ fraudulent activities. It requires the companies to improve the nature of their financial disclosures so as to limit the chances of accounting fraud. A major provision of the Sarbox is that company executives cannot receive company loans, and also whistleblowers are given necessary job protection. Through the act, there is interdependence of corporate boards and financial literacy.
The Act is however, faulty, because it holds that the CEO is responsible for errors that occur in the audit of accounts. Besides being punitive as well as too costly to put in place this act, it generally makes the US a place that is not desirable to do businesses (Albuquerque & Zhu, 2019). One of the faulty elements in holding the CEO responsible for audit errors is that even in the most hardworking CEOs, encountering business errors due to natural forces could nullify their efforts and punish them for the wrongs they are not responsible for. That is, in cases where there are some employees responsible for fraudulent schemes and plans to jeopardize the operations, they can easily escape it as they are not to blame, but the burden is left on the CEO. This Act was meant to reduce fraudulence in the corporate financial reports, but it now serves as an escape point for the fraudulent officials.
Albuquerque, A., & Zhu, J. L. (2019). Has Section 404 Of The Sarbanes–Oxley Act Discouraged Corporate Investment? New Evidence From A Natural Experiment. Management Science, 65(7), 3423-3446. https://doi.org/10.1287/mnsc.2018.3090
McCord, L. B., Young, T., & Weisdorn, G. (2017). Think “It’s Unethical but Legal”? Executive Pay in the Crosshairs. International Journal of the Academic Business World, 11(2). https://jwpress.com/Journals/IJABW/BackIssues/IJABW-Fall-2017.pdf#page=47
Write a fully developed and detailed APA essay addressing each of the following points/questions. There is no required word count; be sure to completely answer all the questions for each question in detail.