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Business - CEOs Paid Too Much.docx

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Philosophy 2074F/G
Michael Herbert

DO CEOS GET PAID TO MUCH – MORIARTY  Organizational theorists and economists tend to be more interested in what the determinants of CEO pay are than in what they should be  The desert view appeals to independent standards for justice in wages  What I will call the utility view conceived of wages not as rewards for past work, but as in incentives for future work  According to the utility view then a compensation package of 8 million per year is just if and only if it maximizes firm wealth by attracting, retaining and optimally motivating a talented CEO  Fortunately, it is not necessary to determine which view of justice in wages is correct to draw any conclusions about CEO pay  CEOS get paid too much  Until it is, we have reason to believe that the current level of CEO pay cannot be justified simpliciter  The problem occurs mainly on the buy side of the equation so we will focus our attention there  Whereas shareholders may elect, out of apathy or ignorance, directors who are unfamiliar with the industry and friendly with the CEO, CEOs can encourage the appointment of such directors  The larger the gift is the more grateful and more inclined to return the favor the gift recipient will be  Self interest is the second factor compromising the independence of directors in pay negotiations with CEOs  But CEO directors have a self interested reason to increase the pay of the CEO with whom they are negotiating  Since they are paying with their own money, shareholders have a powerful incentive not to overpay the CEO. The more they pay the Co the less they have for themselves  Shareholders cannot recall generous directors but CEOs can use their power to force them out  A familiar complaint about CEO pay is that it has increased in years when firms have performed badly. This complaint is grounded in the desert view of justice in wages  Determining how much pay CEOs deserve involves us in two difficulties. The first is identifying the standards for deservingness  A variety of others have been offered, including 1. The physical effort exerted by the worker 2. The amount of ability, skill or training his job requires 3. Its difficult, stress, dangerousness or
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