Read CEO Pay in the News Case 1. What additional information about the CEO’s pay

Question

Read CEO Pay in the News Case

1. What additional information about the CEO’s pay package should Don identify to potentially share with employees?

2. How can Don explain the pay disparity to the employees to ease their concerns about the fairness of the CEO’s pay?

Case : CEO pay in the news

A recent campaign by organized labor unions has brought the issue of executive compensation into the public eye. Media coverage of executive compensation concerns has been extensive over the past few weeks with articles in national publications and a featured story on a television special, in addition to stories on local news stations. This extensive coverage has highlighted public concerns of the high level of pay that top executives receive. The union promotes an executive compensation awareness campaign every year as a strategy to build awareness of perceived inequities between the pay of CEOs and frontline employees. Such awareness often prompts employees to consider forming a union, resulting in the growth of national unions.

The publicity has caused some turmoil at Oakwood Lawns. For the first time, the company’s CEO pay is featured as an example of perceived excess in the executive suite. Several field managers have been in touch with Don Henry, the director of human resources, to report that employees are outraged at the rate of pay of the company CEO and other top executives. In addition to the company’s desire to remain union- free, Don also knows that such outrage could lead to low morale and other problems at Oakwood.

The union targeted Oakwood because it is a big company that has faced some financial challenges. The landscaping company has more than 15,000 employees in offices throughout the Midwest, and most of its employees are frontline laborers. The media coverage has been extensive in the area, and many company employees who viewed the story were surprised to learn the CEO is among the highest paid in the United States. The news was especially difficult to hear as the company recently announced that employees would not receive an annual pay increase due to the financial challenges the company is facing.

Oakwood CEO’s annual salary is $975,000. Add in a bonus, stock awards, retirement benefits, and other benefits, and his total compensation is close to $10 million a year. The average landscaping technician is paid $28,000 annually. The disparity is clear, and Don must now plan a response to address the employees’ concerns.

Explanation / Answer

(1)

The following set of information may be relevant in this context and must be collected and analyzed.

(2)

One the above information is collected, Don may find his position for the argument. For example, if the ratio of average compensation of the CEO to that of a technician is consistent with other firms in the industry, then Don may cite this fact to gain a confidence from the employees. If the growth rate of the performance parameters and that of CEO's compensation matches to some extent or the growth is found correlated with the CEO's salary, Don can derive a genuine logic to convince the employees that having high salary for the CEO is good for the organization as a and since the fate of the employees are linked to that of the organization, employees will also get better off. Finally, he can cite the concept of Equal Opportunity vs. Equal Outcome from John Rawl's Theory of Justice to let the employees understand that when CEO's compensation grows at a faster rate, the organization is better off leading to the Equal Opportunity for all the employees. This makes the high compensation of CEO justified. But his argument must be supported by the data he collected and the analysis he carried out.

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