Recently even with an economic recession and companies using downsizing strategi

Question

Recently even with an economic recession and companies using downsizing strategies to improve their bottom lines, CEO salaries and compensation have reached record heights. Questions about the ethics and social responsibility of these executives receiving these high compensation packages as their companies show losses, has caused many constituents to call for limits to be placed on CEO salaries. Consider if this is really unethical behavior on the part of the CEOs or the unintended results of a performance appraisal system and/or reward allocation procedures. Analyze the pros and cons of implementing these limits. Do you agree or disagree with implementing CEO salary limits? Present your side in a written report. Remember to support your side with researched material (5 paragraphs)

Explanation / Answer

I feel ethically it is not right for the CEOs to receive high compensation packages as their companies show losses. Since recently most of the companies are reducing their costs by adopting various cost cutting measures like reduced employee compensation, CEOs salary hike is not justified. This might be because of the inherent discrepencies in performance appraisal system. This could be beacause of the Principal-Agent problem . Hence , I feel there should be a cap of CEO's fixed salary component but variable salary should be left uncapped.

There are various advantages and disadvantages of capping the highest salary of CEO.

Disadvantages

Advantages

On the basis of above points, I feel that there should be a cap of CEO's fixed salary component but variable salary should be left uncapped so that CEOs put their maximum efforts to increase the stakeholders value.

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