Question

executive pay is not an ethical issue it is just a question of paying people a market rate. Critically evaluate this statement using examples from contemporary business practices.

Answer 1

Answer:

Executive pay is a combination of the financial compensation and some non-financial benefits provided by the company to upgrade Executive as the highest designation and highest pay. There are many reasons hidden in compensation of executives like he must be precious to the company and it is important for investors to consider while taking decisions. Although compensation just includes base salary, stock options, long and short term incentives, deferred compensation, and other benefits like a car, house and vacation trip, etc. There are different conditions to which Executive pay is decided like it is a public corporation or private, condition of the firm or according to the decisions of the board of directors. Even executive compensation law is made to make decisions favorably. If we see executive pay they are really high but when the comparison is made between other employees no doubt it will have to be high, and if this comparison is done on negative perception executive pay becomes an ethical issue.  It is just a market need or executive are paid knowingly.

When we compare work with low pay employees and an executive there is a huge difference because workers are working manually and physically but the executive is making and following strategies on how to work, how to implement, expansion, dealing business plans he is working mentally. If all his strategies are giving success to the firm than the executive can also have a share in the success. This can be just a monetary motivation to him by the company directors, to set as unethical is not correct. But sometimes it is also a need for the market as it is the competitive and tough business world. the conditions of the market are facing recession and inflation, in this case, when executives are paid high it attracts them to retain in the firm. The market rate is observed in the competitive firm as it has also become a standard in the business world.

For example, Tesla company CEO Elon musk is one of the highest-paid CEOs. The reason is Musk is innovative and a leader in his work. His creative mind has made Tesla one of the highest profitable company. Although now because of some issues with Elon Musk and his case of rare high paying CEO is being objected. It is being said this cant be beneficial and reasons should be revealed. As the board of directors is being questioned about his pay, which was around $2.6 billion in 2018 but was paid $56 Billion as the market cap hits a huge amount of $650 billion as his success or target. It is a 10-year pay package and he already had 21.9% shares. Here the concept was raised Fair Dealing or Fair Price.  Fair dealing is done by shareholders and is conduct related but fair price is the market concept.

For example, Even Bob Iger is also been charged for being paid insane by Abagail Disney who is granddaughter of the company co-founder. If it is compared with the median employees of the company although according to her bob is good in his work.