Executive Compensation

Running head: ETHICAL EXECUTIVE COMPENSATION

Ethical Executive Compensation -

A Foundation for Effective Leadership

Human Resource Management 300

University of Maryland University College

Abstract

In an increasingly competitive global market place employers are expecting employee “buy-in” to company goals and philosophies so the company can react quickly and decisively to changes in market conditions. The financial crisis that began in 2008 forced companies to slash costs through layoffs, outsourcing, cuts in pay and benefits and unpaid furloughs to attempt to maintain profitability. Unemployment soared to near depression era levels. The collapse of the housing market triggered the failure or near failure of critical financial institutions with ripples throughout the financial markets. As the financial crisis pushed the United States dangerously close to depression, executive compensation continued its meteoric rise. Investigations into the collapse brought to light insider trading and complicated and risky derivative market investments spurred on by corporate executives driven to enhance shareholder value at all costs. The stock options and grants included in executive compensation packages blur the line between the fiduciary responsibility of corporate managers and their quest for increasing compensation. Executive compensation should incentivize the creation of organizations that provide stable, long-term employment that reasonably compensates board members, executives, employees and shareholders. This requires a shift in view and expectation from short-term profits and stock price manipulations to a long-term strategy of stewardship and social responsibility. Developing strategic executive compensation strategies is the most important challenge in Human Resources today.

Ethical Executive Compensation – A Foundation for Effective Leadership

In Cato’s Letter Number 91, written by John Trenchard and printed in The London Journal on August...