Ethics of Corporate bonuses in a failing company
The issue of awarding corporate bonuses has in recent times generated more heat than light with even the US president, Barrack Obama referring to the huge amount of money awarded to the executives as bonuses shameful. The executive employees, who may include the chief executive officers, company presidents, chief finance officers in addition to other top level managers in an organization or company, are entitled to a package which is distinct from that of lower workers. This package is inclusive of the base salary, incentives that are long term, bonuses, perks and benefits.
In the United States for example, the total amount comprising the executive compensation has continued to increase day by day, a condition that has led to the discussions of ethics and equity. This greatest concern when determining the executive compensation is the external equity and not internal equity (Loyola University 2008). Executive bonuses are part of the base salary and they fluctuate with the performance level. Bonuses are used to motivate the executives to achieve some goals for the company such as particular profit levels.
Bonuses may be based on several outcomes of performances such as assessment by the board of directors or even the market share/profits level. It is now evident that many executives receive bonuses, which are included in the compensation package. A study that was carried out by the Mercer showed that chief executive officers in a hundred American corporations got a bonus (median) of US dollars 1. 14 million in the year 2004, which was forty one percent more than their yearly salary (Encyclopedia of Management 2007). These bonuses have been criticized by some as being unethical.
The Catholic Encyclopedia has defined Ethics as “the scientific treatment of moral order” and places it in two groups, namely, theological ethics and philosophical ethics Theological ethics are those based on Christianity while philosophical ethics are based on moral philosophy (Knight 2009). This essay seeks to support the claim that giving of corporate bonuses in a falling company should be based on ethical practices. Case studies On the Wednesday of May 6, 2009, an article appeared in the New York Times entitled “Bonuses for bad performance.
” The story is about the former chief executive of Merrril Lynch Company, Mr. John A. Thain who has come under scrutiny because of the company’s choice to pay money worth between US dollars 4 billion to 5 billion as bonuses in 2008. This had happened despite the huge losses that the company made in 2008, closing of several big names in the US industry and the bail out which was in billions of dollar. It is reported that Wall Street released about 18. 4 billion us dollars in bonuses which have been reported as the sixth largest in US history.
This prompted President Obama to refer to the giving of these bonuses as shameful and indicated his plans to take tougher steps against executive compensation excesses (Editors 2009). The daily Intel carried a story on 17th of March 2009 that was entitled “Are AIG bonuses ruining Obama’s big steps” and that indicated that president Obama along with others were greatly angry and disappointed with the American International Group’s decision to give out bonuses amounting to US dollars 165 million. This irony was that the bonuses were given to the same executives who led to the collapse of one of the largest insurance companies.
Commenting on the action, the senator of Iowa, Grassley stated that the executives of AIG “committed ritualistic suicide. ” Immediately, president Obama directed the Treasury department to try everything possible to block those bonuses; though the white house later admitted that this would in fact be more costly and thus the government was forced to leverage thirty million US dollars that it was yet to allocate to AIG in order to recoup the bonuses’ cost and executive compensation (Amira 2009).
Initially, AIG had already gotten more than $220 US dollars from the Federal Reserve and the Treasury. Before the government steeped in, the bonus plan that had been established for products (financial) unit needed $220 million as pay so as to retain the four hundred workers in 2008. The first bunch of that money ($ 55 million) was paid in December while $165 was paid in March.
This payment was criticized as many felt that this was not the right time to make such huge payments while the country was experiencing a financial collapse and was also a setback to the efforts of the government to sustain Wall Street. The reason why Obama’s administration could not do much to stop the payment was because the firm had already signed the contract with the executives (Andrews & baker 2009).