MBAO 6600 - Executive Compensation Compensation Ethics What are Ethics? 1. Are ethics enduring principles that represent absolute standards of conduct? Or… 2. Are ethics situational standards that depend on the context of the situation? What are the implications of accepting one of these ethics perspectives and excluding its alternative? MBAO 6600 - Executive Compensation

Compensation Ethics: Perspectives Compensation Policy Supervisory Pay Decisions Employee Conduct involving Pay Ethics of Pay and the Law MBAO 6600 - Executive Compensation

Ethical Perspectives of Compensation Policies What should be the basis for appropriate comparison firms to determine the worth of the executive in the market? What should be the formula for determining stock option valuations? Selecting the appropriate central tendency statistical measure to compute the firm’s market position compared to competitors Median Mean Weighted Mean low high MBAO 6600 - Executive Compensation

Ethical Perspectives of Compensation Policies Use of Consultants Finding consultants who are willing to justify favorable compensation for the top executive client. The use of consultants who bury contrary opinions to those of the top executive. Disclosure of Compensation Disclose procedures and policies for determining pay? Disclose amounts of pay for groups or individuals? MBAO 6600 - Executive Compensation

Ethical Perspectives of Compensation Policies Rewards for Elite Individuals or Broad-based Pay Policies? Stock Options Profit Sharing or short-term bonuses Perks for Top Executives? Company car Large offices, special parking privileges Special retirement and health benefits for executives? Special executive severance policies (golden parachutes) MBAO 6600 - Executive Compensation

Ethical Perspectives of Supervisory Pay Decisions Should “squeaky wheels” be rewarded? (those who complain the loudest) Should employees who are not liked or do not get along with others, yet in other respects perform effectively, be under-rewarded? Should a manager provide a counter-offer to an employee with an employment offer with a higher level of pay, if it exceeds that of other employees in the same job? MBAO 6600 - Executive Compensation

Ethical Perspectives of Supervisory Pay Decisions Should you provide a higher salary offer to hire a job applicant who is the best negotiator? Should a supervisor fight harder for a pay raise for an employee who is perceived as “critical” to the unit? MBAO 6600 - Executive Compensation

Ethical Perspectives on Employee Conduct involving pay Should an employee embellish his/her resume (w.r.t. experience, job skills, etc.) in order to receive a higher pay offer in the market? It it Ethical to solicit job offers from other employers when your intentions are to use them as bargaining chips to receive a better pay offer from your current employer? If your intention is to find a better job, is it ethical to allow your current employer to make a counterbid to retain your services with the firm? MBAO 6600 - Executive Compensation

Ethical Pay Practices and the Law Is it Ethical to Deny Contract employees the right to have Benefits (health insurance, stock options, 401(k) plans, etc.) that permanent employees receive? Is it Ethical to use non-compete agreements that restrict exiting employees’ rights to practice their skills at another firm? Is it Ethical to re-price stock options for key executives but not extend it to other employees or shareholders? MBAO 6600 - Executive Compensation