Question 1
Executive compensation, in its different parts funded at the current level, is unethical. It is unethical as most of the firms involved focus on the variable pay that will be included in the compensation package of an employee when using this form of compensation (Bebchuk et al., 2009). However, most employees are typically focused on the net income that they earn each month and the complete package as they are not able to receive it each month. The funding of executive compensation is also unethical due to the occurrence of bias during the handing out of stock options to employees (Bebchuk et al., 2009). The existence of bias results in the unfair compensation of some employees while other workers who deserve the compensation miss out. The possibility of executive compensation being exploited at the current level creates a need for several reforms to be made.
Revisions can be made to the executive compensation by establishing a fixed percentage for every component of the salary to cater to different employees. Every employee in the firm, at different positions, should have a fixed compensation package that correlates to their expertise, tasks, and current responsibilities. This will ensure that there are clear and fixed guidelines for how compensation is distributed to employees. This will eliminate the possibility of bias and ensure that the process is fair and just to all the employees involved. The government has an important role in executive compensation as a policymaker in the welfare of employees (Nguyen et al., 2020). While its role is not substantial in private corporations, the government can establish rules and regulations that would guide the compensation process. The government can create policies that will be utilized to monitor the compensation process and ensure that it is ethical.
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Question 2
The Sarbanes-Oxley act is just right as it focuses on restoring the confidence of investors in financial markets. The act closes the loopholes that enable public companies to defraud investors and, in turn, resulted in the reduction of the numerous corporate scandals that characterized the financial sector. The Sarbanes-Oxley Act of 2002 was established by Congress as a response to numerous cases of corporate fraud and failures (Orin, 2008). This act implements new rules for corporations, such as establishing new standards for auditors to minimize conflicts of interest and transfer responsibility for the handling of financial reports. By establishing harsh penalties for violators, the act helps in deterring the level of fraud and misappropriation that exists in the financial sector (Orin, 2008). The act has also increased the level of transparency by increasing disclosure requirements for financial investors. By considerably changing the managerial responsibility for financial reporting, the act has been critical in mitigating the level of unethical practices that exist in the financial sector. The strict and harsh terms it imposes on those responsible for financial accounting and reporting have been beneficial to the ethical status of the financial community, making it just right.
References
Bebchuk, L. A., & Fried, J. M. (2009). Pay without performance: The unfulfilled promise of executive compensation . Harvard University Press.
Nguyen, T. H., & Soobaroyen, T. (2020). To what extent do governance, government funding, and chief executive officer characteristics influence executive compensation in UK charities? Insights from the social theory of agency. Financial Accountability & Management . https://doi.org/10.1111/faam.12268
Orin, R. M. (2008). Ethical guidance and constraint under the Sarbanes-Oxley Act of 2002. Journal of Accounting, Auditing & Finance , 23 (1), 141-171.
