Case 6.2: When in Rome, Do as the Romans and Case 7.2: Paying the Next CEO

Case 6.2: When in Rome, Do as the Romans?

Upon graduation you take a position with an organization setting up Internet/coffee houses in countries with developing economies. One of your first assignments is to spend a month in Southeast Asia to assist in opening stores near large university campuses.

During your first week, your supervisor (a citizen of the country you are in) asks you to look into acquiring electricity and phone service for the stores. After you stand in a long line, a local government official informs you that the wait for such services can take six to nine months, a delay that would make it impossible to open the stores by the start of the school year. When told of the waiting period, your supervisor informs you that the proper procedure is to go back and recognize the government official’s position and authority by offering him a gift (approximately $1,000 U.S.) in order to receive faster service.

Upon hearing this suggestion, you raise the question of whether such a payment would constitute bribery since these types of payments are not legally acceptable in the United States and seem to contribute to corruption. Furthermore, they seem to give you an unfair advantage over a local citizen who cannot pay the amount in question.

Your supervisor replies in a joking manner that “you should take off your ‘red, white, and blue’ glasses, because this is the way things are done here.” “Besides,” he explains in a more serious tone, “there is a vast difference between a ‘gift’ or ‘tip’ to ensure promptness and a true bribe. A gift is perfectly legal here, especially considering the small amount in question. It simply speeds up the process.”

“It’s like paying more for first-class service in your country,” he says.

“We are not corrupting anyone. It’s a common, known practice. In fact, the gifts are considered part of the compensation of government employees, who are paid very poorly, so you could look at it as a form of charity,” he concludes. His answer sounds reasonable, but you are still troubled.

Questions for Discussion

1. Based on the readings, which of the practices could you support from an ethical perspective? Why?

2. On what basis should we make decisions about matters of right and wrong when another culture’s practices differ from our own?

3. Do you think that the payment in question constitutes bribery? Or would you refer to it as something else — a gift, tip, or premium?

 

Case 7.2: Paying the Next CEO

 

You are a board member of a large publicly traded company in the consumer electronics industry. For the past three years, you have served on the compensation committee (charged with determining executive pay). Just recently the CEO announced her retirement after a highly successful ten-year term. You are now representing the compensation committee on a task force to discuss the compensation range and package that will be offered to the next CEO. The task force is composed of yourself, a member of the board search committee, a representative of an outside executive search firm hired by your company, and a consultant from a renowned benefits and compensation advisory firm.

 

During the initial meeting, it becomes apparent that the other members of the task force basically want to continue past compensation policies for the CEO — a high “market-based” salary (probably around $10 — $12 million per year) and incentive based stock options tied to “performance” as measured primarily by stock price. Using this formula, the recently retired CEO often made $20 — $25 million per year. “If we want someone good — and executives who are good are in high demand — we have to pay the going rate; that’s simply how the game works,” the compensation consultant says.

 

You are not so sure about continuing in this manner. You were once a staunch supporter of the policy advocated by the others on the task force but have begun to rethink your position amid public outcries about CEO pay. At a recent shareholders meeting, a highly vocal group began raising concerns that the CEO was paid far too much and that it was not only unfair, but bad for the long-term health of the company.

 

They accused the company of giving “rock star” treatment to the CEO and minimizing the contributions of other employees to the success of the company. To support their argument, they brought out charts that showed the rapidly widening gap between the CEO and the company’s lowest paid workers (from 1:15 to 1:1000) during the past decade. They also showed that on a national basis, pay gaps are much larger in America when compared with other parts of the world. They questioned the impact of such a widening gap on overall morale and cohesion.

 

They also noted the possible abuses that incentive-based pay have contributed to in recent years (managing for short-term stock price gains versus building a company for long-term health). Moreover, they pointed out the “ridiculousness” of tying CEO pay to stock price, since many factors (including general economic conditions, Wall Street expectations, and the performance of many employees in the organization) may influence it. Finally, they noted that the “market-based” compensation model would only serve to attract someone who is “in it” primarily for the money, while they would hope a good company should be able to attract someone who is interested in leading an organization with “a sound sense of purpose.”

 

Questions for Discussion

 

1. Which side will you take? Do you agree with the other members of the task force or with the shareholders who have raised concerns and want an alternative approach?

 

2. How might Christian ethics contribute to the discussion of executive pay? What considerations might it raise in this case?