Integrity Matters
May 14, 2003

Some in boardroom have say on own pay

Question: (E-045)
It is being discussed and written about seemingly everywhere: American CEO's, on average, this past year were paid 241 times as much as the average worker. This seems unfair and a violation of integrity. Am I right?

Grossly overpaid executives are enabled to "take" all they can get by their very own boards of directors. Where they are being over-compensated, not only are they are taking money from their own employees, but also from the risk-taking investors who entrust them to create an appropriate return.

However, like spoiled children who have just finished a well-balanced meal -- in these cases a meal that had already included a wonderful dessert called large salary and bonus, plus stock options and retirement packages, these self-absorbed bosses are begging for even more.

Are these compensation packages unfair? No, not if the results match the rewards. If the leadership of an organization enhances the productivity and profitability, then what is wrong with rewarding those who generated it? There is no integrity violation when individuals do what they are supposed to do and then are rewarded for it.

This is not about socialism's equal distribution; rather, it is about what causes workers and bosses to respect and appreciate one another, year after year, and still want to work together, productively in the future.

Is the crazy high pay for mediocre or poor performance an integrity issue? Certainly, it is. According to Holly Sklar’s book, "Raise the Floor: Wages and Policies that Work for All of Us," when CEO's are paid, on average, 241 times that of the average worker, then the boards of directors’ levels of accountability should be evaluated. Obviously, sanctioning compensation inequities means that board members are not thinking and acting responsibly on behalf of either their own investors or on behalf of the work force upon which their enterprise depends.

Compensation committees can recommend any salary and benefits package they can dream up. However when it is the board of directors that must approve these gigantic rewards, then they must do the work for which they are paid: Ensure the viability of the enterprise (people, products, markets, services) and reward investors appropriately. Any other leadership approach by a board of directors would seem to border on the illegal and the irresponsible.

Certainly, decision-making regarding outrageous CEO pay by boards might cause investors to question their judgments in other areas.

There is little doubt that rank and file employees have already concluded that such decisions are violating the integrity and trust that needs to exist between themselves and their organizations.

Home Page | About Us | Ask Bracher | Services | Resources | Contact Us

©Bracher Center for Integrity in Leadership. All Rights Reserved.
1400 Munras Avenue ~ Monterey, California 93940