Ethical Compensation scheme
A CEO compensation scheme involves a large variety of payment given to an executive within a particular firm. It consists of non-monetary and monetary form. Recent economic crisis experienced in the United States has elicited heated debates over CEO compensation schemes that have been perceived as unfair while compared to that of the ordinary workers. Such hefty compensation of the CEO is unethical as they contribute to financial crisis as well as social injustice. Thus, it is important to design an ethical compensation scheme that is fair and that encourages the CEO to work in the best interest of the firm.
The compensation scheme for the newly hired CEO will provide fairness among all the other executives and the employees in the company. This will be a vital signal of welfare, morals, and values and above all ethical in all the operations of the firm. The higher-ranking executive, in this case the CEO will receive a higher compensation for purposes of recognizing and rewarding the contribution of the CEO towards the growth of the development of the company. In addition, the compensation of the newly appointed CEO will also be comparable with other CEOs from other firms that are at the same level. Most executive make a comparison of their compensation with that of other executives in other companies as well as their role and contribution to the company. Paying the newly hired CEO as his peers can motivate his performance in the firm.
Further, the compensation of the newly hired CEO shall also be aligned with the interests of the shareholders in an effort to satisfy both sides, avoid a scenario where the executive receives large compensations, and reduce the profit margins for shareholders. The principal and agent objective will be applied where shareholders will act as the principal and the CEO as the agent. The newly appointed CEO shall therefore, receive a compensation that is fair in comparison to other executives and employees working under him. The compensation shall also be about the same to that of other CEOs and it will follow the principal agent objective. This will ensure fairness and ethic in the compensation scheme of the newly appointed executive.
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