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Why do the FAT CATS keep getting fatter?


One of the subjects that we have briefly touched on during our time in class is CEO compensation and income inequality. We read a brief by AG Lafley who argued that it is time for CEOs to take a stand. He acknowledges in the article that “amounts and forms” of CEO pay are “unacceptable and inappropriate.” He believes that failure to take action will ultimately result in governmental action. Lafley offers several suggestions. His four main points are “reward with equity, restore integrity to equity grants, eliminate post-employment provisions not pegged to performance, and implement more-detailed analyses.” Essentially, Lafley wants to increase CEO incentives to perform well, maintain CEO equity in the firm, remove forms of pay like automatic stock options, and value executive compensation appropriately, including all forms.

I was intrigued by this subject and wanted to research it more because it stands in stark contrast to what I am planning to write about for my final white paper. My first argument draft focused on poverty in America and its impact on children and minorities. I plan to combine this dialogue with a focus on the working poor as well. Eventually, I want to recommend suggestions to federal legislators to assist those who need the most help. Providing information in my paper about the wealthiest Americans would portray the alarming shift of wealth in our country by giving examples of those who are benefitting most.

I conducted some initial research through Google and discovered a Businessweek article which stated that in the 1980s, the CEO of a major corporation made 42 times the average hourly worker in the company. This number has skyrocketed to a remarkable 531 times the average hourly worker in recent years. Many questions have been raised about whether executive compensation is truly connected to the financial performance of their company.  Recent social movements like Occupy Wall Street have shown that the general sentiment is that it is highly unlikely that all or most of the growth of a company is due to just one person. No reputable studies have connected high levels of CEO compensation to company performance. Nevertheless, it continues to increase the gap between CEOs and those front line employees who are heavily relied on to deliver growth. It is predicted that the current pattern will result in less employee motivation.

I conducted a cited reference search and came across an article titled “Exorbitant CEO compensation: just reward or grand theft?” which was written by David O. Friedrichs in October 2008. This article thoroughly discusses CEO compensation and provides a significant volume of data to back up its claims. It makes the  argument that exorbitant CEO compensation should be considered a white collar criminal offense. It even goes so far as to evaluate what changes would be needed legally to criminalize excessive pay. While this article may represent an extreme side of the debate, it provides a good starting point for me as I begin to brainstorm federal legislative changes which need to be made in order to decrease the gap between executives and those who fall below the poverty line.

About JOEY MARTIN

I am a Senior Management major at Bucknell University. I am currently living in Orlando, FL but moved around a lot as a child as an Army Brat. I am looking to go into Finance following graduation. If that doesn't work out, I am considering moving to Washington D.C. and doing political work for a period of time.

Discussion

3 thoughts on “Why do the FAT CATS keep getting fatter?

  1. Joey, I was extremely close to writing my first argument paper about executive compensation but took a more broad look and decided to investigate the actions of the SEC. I think Lafley’s article is my favorite piece we have read/studied thus far in Jordi’s class. It speaks miles that Lafley was the CEO of Proctor & Gamble, one of our nation’s largest corporation and powerhouse. It will be very interesting to see what sorts of research and policies have been implemented regarding this clearly relevant issue. Given your keen interest for politics, this will be an excellent way to try and make federal legislative changes.

    Posted by Patrick | March 27, 2012, 9:50 pm
  2. Joey – I think this is a great and relevant topic that you have decided to research further. I remember being suprised reading Lafley’s article, as most CEOs tend to be shown as having contrary and self-serving mindsets. It is nice to see that there is an exception every once in a while. This article also reminded me of an article we read in HR last semester about the CEO of Whole Foods, who in 2009 wrote a letter to his employees that he no longer wanted to work for money and that he was establishing a cap for all of the executives pay. It is encouraging to know that some companies have these policies, but something needs to be done to make the viewpoint of CEOs like Lafley more widespread.

    Posted by Beth O'Brien | March 28, 2012, 1:22 pm

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