ceo paycap and nationalization debate
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ceo paycap and nationalization debateTRANSCRIPT
HOST : WANXI
•Our money is being used to finance big executive bonuses
•CEOs involved in financial meltdown
TAXPAYER
• From Carroll’s CSR pyramid, besides having economic and legal responsibilities, firms ought to be ethical too
TAXPAYER
• Obscene amount of CEO compensation, roughly 400 times average worker pay • CEO pay should be based on the performance of the company
EMPLOYEE
• Under the New Social Contract, employees to be paid according to “value-added” contributions EMPLOYEE
New Social Contract Old Social Contract
Few tenure arrangements Job security
Few life careers; changes common Life careers with one employer
Loyalty to self Loyalty to employer
Relationships far less familial Paternalism
Personal responsibility for one’s job
future Sense of entitlement
Pay for “value added” Stable, rising income
Focus on team building and projects Focus on individual accomplishments
• If the company is doing badly, every employee, CEO included, should be expecting a pay cut or job loss • Much less expecting bonuses which are supposed to be a reward for excellent performance
EMPLOYEE
• Promised big bonuses and high pays in employment contract
• As an employee, entitled to the rights to due process and fair treatment
CEO
• Is it fair and ethical to dishonor the contract just to please the angry taxpayers and employees? • Also there is only a small talent pool of CEOs who have the expertise, skills and knowledge to manage a globally competitive company
CEO
SHAREHOLDER
• Giving CEOs big bonuses as incentive to maximize shareholder value • Hence gaining maximum returns for investments • Primary aim of the firm is to maximize financial return
SHAREHOLDER
• However, top management should also be more transparent in their disclosure of their paychecks • Big bonuses and high pays must be justified to shareholders
SHAREHOLDER
• As owners of the company, there has to be safeguard for fair treatment to shareholders
• As an advocate of capitalism, success should be rewarded
• Capitalism has worked well for developed countries like the UK and US
• However the big bonuses have been rewarding executives for failure
GOVERNMENT
• Moreover these rewards are subsidized by taxpayers who are having a tough time themselves amidst the financial crisis
• It is shameful for executives to rewards themselves during these tough economic period
• A government’s role is to represent the taxpayers
GOVERNMENT
“Financial systems are built on trust and confidence. There have been falling confidence and rising debts, due to the top management seeking tax-payers money while paying themselves lavish bonuses….
GOVERNMENT
… This is the height of irresponsibility, and is shameful. We need a strong financial institution to keep credit flowing to business and families, in order to restore trust and confidence in the financial system.” - Barrack Obama
GOVERNMENT
• Proposing a pay cap of USD$500,000 on all top executives • Applies to all companies receiving bailout money in the future
• Firms should take responsibility for their actions and attempt to rectify their mistakes GOVERNMENT
GOVERNMENT
•Any further delay to act will lead to a collapse of the financial system •The impact on the world’s economy would be too severe to salvage by then •Nationalization forces banks to be transparent in their dealings
• Pay cap may encourage older CEOs to retire rather than accept a severe pay cut • This would allow energetic young executives to take over with new and innovative ideas
EMPLOYEE
GOVERNMENT
•Nationalization is the lesser of two evils •Nationalization is suitable for troubled company in the short run •Triple bottom line sustainability??
GOVERNMENT
Triple bottom line sustainability ??
destroys mutual trust
It undermines the smooth functioning of the organization
and tears at the fabric of society as a whole.
Executives are welcoming the government bailouts
TARP funds bonuses and compensations
Older executives - experience and the expertise
incentive to stay and guide the direction of the company when they are promised huge bonus payouts.
Our money is being used to finance big executive bonuses
CEOs involved in financial meltdown
higher equity
Management & employees
Japan and other Asian countries
Prevent a hey, free money” mentality
avoid massive tax-payer waste.
Only executives who really need TARP
accept tax-payer money because it directly reduced their own pay.
reassured to know
money is not going into the pockets of CEOs
bailout was intended to save the firms from insolvency
from a private investor capacity
from a private investor capacity
the taxpayers are also at a position to decide or approve what kind to purpose their money should be used for.
Nationalization the best option for safeguarding taxpayers’ money
could reap long-term benefits for the company
e.g. Northern Rock’s nationalization ensures that taxpayers will get every single cent back
Managers of private firms may pursue their self-interests without considering society’s interest and squander government aid. (e.g. many US citizens were infuriated upon learning that the US$180 billion government bailout was used to fund the big bonuses of managers AIG)