Sky-High Salaries Case Study

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I. Introduction Mishel, Bernstein, & Allegretto (2005) studied that the payment ratio between CEO and average company pay was continuously increasing. In 1965, the ratio was 24 to 1, and then by 1980 the ratio had increased to 40 to 1. Furthermore, it continuously increasing every year until its peak in 2000 to 300 to 1. This CEO’s extravagant payment has caused some ethical issues which will be studied in this essay. II. Ethical study of CEOs’ sky-high salaries The tendency increasing CEO’s salary may base on Skinner’s Rewards / Reinforcement Theory. In this theory, Schacter, Gilbert, & Wegner (2010) argued that behavior which is rewarded will be repeated. This reward can be expanded to the broader context. As suggested by Laegaard & Bindslev…show more content…
values, management style, strategy, and structure. In this case, if the organization structure is a very high bureaucratic pyramid, the CEO’s salary will be very high compared with other common employees. Moreover, the over-increasing CEO’s salary is also supported by the external forces. Kaplan (2015) argues that the market forces has pushed organizations to reward top people a lot, due to current market’s rate and market’s demand for top quality CEO in today competitive market. However, John Mackey disagrees with the above arguments while supporting his opinion with Maslow’s Hierarchy of Needs Theory. According to Mackey (2009), money becomes less important when human basic needs have been fulfilled. There are other aspects such as deeper purpose, personal growth, self-actualization, and caring relationships which can provide a great motivation and sometime more important than financial compensation. Furthermore, from the organizational distributive justice point of view, employees usually compare their salaries with others, and when they feel to be treated unfair, they will be motivated to create justice by changing their working input and output (Laegaard & Bindslev, 2006). In this case, when many common employees feel that their CEO’s salary is too high compared with their salaries, they can feel that their salaries are too low and can be demotivated, hence reducing their working output to create their own justice.…show more content…
This can impact the overall employees’ motivation within the organization, which eventually will impact the organization’s performance. Apart from the market forces, it is an unethical behavior to pay CEOs so much more than other employees. This can reduce employees’ morale, loyalty, trust, and solidarity, which eventually will reduce the company’s performance. As discussed above, this practice is also not aligned with any valid reward distribution system. Reward should also base on personal’s performance. An agreed exaggerated salary during hiring prior to showing their performance cannot be justified, even from Skinner’s Rewards / Reinforcement Theory perspective. Therefore companies need to reduce this salary gap to improve the overall moral of their employees. There are some suggested options to reduce the CEO’ salary, such

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