Executive compensation in the form of salaries, stock options and severance packages funded at the prevailing level raises ethical issues. In determining whether such payments are ethical or not, there is a need to evaluate the same using ethical theories. One evaluative criterion that can be used is the accrued benefits. It is critical to determine the beneficiaries of such compensations and their contribution to the organization. If such payments are agreed upon and the compensations are made in such a manner that the organization benefits then no ethical issues arise. However, if the payments end up benefiting a few individuals at the expense of the entire organization then serious ethical issues are rained.
Compensations of any form must adhere to the ethical principles of beneficence, least harm and justice. The leadership of an organization must base their decision on what is right and good. Such leaders therefore allow payment of compensation if they contribute to the good of the entire organization. The second principle gives executives an opportunity to select options that have the lowest possible harm to the organization and its stakeholders. The decisions made by the management must be fair to all the stakeholders.
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From ethical theories, the decision makers must adhere to their obligations to the stakeholders since ones duty determines ethical and unethical practices. Managers can also make decisions base on the consequences of their action. If an action is perceived to lead to positive outcome then it should be pursued otherwise if payments lead to negative consequences it should be disregarded. Executive compensation can also be evaluated from ethical theories based on rights that have been endorsed by a larger population.
Executive compensation can be revised to be just by evaluating their ethical ramification and establishing whether they are justified or not. If it is determined that they are not, then ethical principles should be applied to address the discrepancies thus enhance a common understanding that benefits all stakeholders. The compensation can therefore be changed to performance base or should be according to pre-established policies and procedures that have been subjected to internal checks and controls. The government can play an oversight role of ensuring that the management does not exploit executive compensation to enrich themselves at the expense of the organization.
Is the Sarbanes-Oxley Act too strict, not strict enough, or just right?
The SOX act of 2002 was enforced following a series of high profile scandals involving the manipulation of financial statements. Companies like WorlCom and Enron engaged in such practices in an effort to manipulate their performance to appear highly valued and therefore defraud investors. Section 404 of the Act for example requires that companies should have a strong internal control system ( Jones, 2003) . Similarly, the act required that a third party accounting firm should ascertain that the internal control systems are effective and therefore can prevent fraud.
The public company accounting oversight board was created to oversee the accounting industry. The act therefore le to the development of audit standards that calls for the audit of internal controls. Similarly, it ensures that the audit is also integrated with the investigation of the financial statements of the company to determine whether they reflect a true and fair view of the company. The SOX Act was therefore just right since it safeguards the interest of the investors while preventing the management from engaging in fraud related acts. It ensures that the internal control systems are strong enough to avoid any form of fraud that can affect the performance of the company and the interest of the stakeholders ( Jennings, 2015; Jones, 2003) . However, organizations should incorporate ethical practices while at the same time adhering to the SOX Act to ensure that fraud and other forms of malpractices are eliminated.
References
Jennings, M. M. (2015). What accounting fraud looks like at its inception: Could you see it in your own company? Corporate Finance Review, 20 (1), 28-33
Jones, R. M. (2003). The Sarbanes-Oxley Act of 2002: A primer. Business Torts Journal, 10 (3)
Trottman, M. (2015). Top CEOs make 373 times the average U.S. worker. The Wall Street Journal . Retrieved from http://blogs.wsj.com/economics/2015/05/13/top-ceos-now-make-373-times-the-average-rankand-file-worker/
