Chapter 10 Compensation: An Overview 1) Should the federal government place a ceiling on CEO compensation? Why or why not?
Yes and no. While figures show that compensation for CEO’s in this country are staggeringly higher than any other country every company should have the ability to pay their CEO what they feel they are worth and what the company can afford. Here is where the no comes into play; if you are on the verge of bankruptcy or are showing negative profits than you should probably not be paying your executives exorbitant amounts and be providing comfy benefit plans for them. As the U.S. economy slowly and painfully climbs out of a crisis (leaving 8 million plus without jobs), talk is stirring that the executives responsible for the crisis should have their wages capped. In particular, companies that received bailout money (tax dollars) are the focus of the attempts to limit compensation. Executives of companies that received tax dollars to avoid collapse should have limits (for a defined period) placed on executive compensation. Generally, executive compensation is a tax deduction for the corporation, so the taxpayer is underwriting part of the package. There is a movement to include as a significant part of financial reform limits on the amount of compensation a company can claim as a tax deduction. For example, if a company wants to pay an executive $10 million in compensation, that should be its decision. However, if the government said only $1 million (for example) could be deducted as a business expense, the taxpayers would not be subsidizing the balance. Unfortunately, the government has been tinkering with such a limit for some years. The results have only changed the way executives are compensated not how much they are compensated. 2) Is pay compression a potential problem in terms of employee morale? Why?
Yes, compression may lead to systematic inequities for a group of positions or for positions across an entire organization. Morale issues result when employee capability is tied to professional maturity but changes in salary structures do not mirror increases in that maturity. The morale issues are compounded when such issues persist over an extended period of time. Simply put, wage compression occurs within a company when the newer (or lesser skilled) workers’