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Promote engagement by the stakeholders Essay

Criticizing the offer of the bonuses, President Obama stated that it was unfair and unethical for such an amount of money to be given out to a few executives while there were very many ordinary people in the country who were working very hard to meet their responsibilities, without any kind of government bailouts or bonuses amounting to millions of dollars. Such people struggle to “keep their credit line open. ” “And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic that we have to demand” (Quijano 2009).

Justification for the corporate bonuses The following are the reasons that have been raised to support the issuance of bonuses to the top executives; one, they create value that is greater than his or her bonuses (or compensation). They claim that without the chief executive officers, the firm may not be much valuable and thus it is ethical for them to take such an amount as bonuses. However, the opponents of such an idea argue that the firm has very many stakeholders and thus the success of such a firm should not be attributed to the CEOs only (Lopez

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& Ross).

The other point that is raised is that the market for executives is fair and effective; stating that the CEO compensation is subjected to the forces of the market. This means that when the CEO is underperforming and overpaid, the executive markets will provide the firm with another person who can perform the same job. This however may not be factual reason being that firms undergo a strenuous process in getting the right CEO or even firing the underperforming one; as they have to pay severance packages indicated in the contract (Lopez & Ross).

The other justification brought forward by the board of directors in giving hefty bonuses to the executives is that the company must remain competitive with other rival companies in getting and maintaining a capable CEO. They add that if the CEO is non- performing, his or her bonuses should be reduced or even be sacked. The forth justification is that the chief executives must be paid the right amount as the board must be mindful of the interests of the shareholders. The limitation to this argument is the assumption that the interests of the board members are always alighted to those of the shareholders (Lopez & Ross).

Conditions for the giving bonuses For the giving of corporate bonuses to be fair and ethical, the compensation systems of a firm should be in a position to link the bonus pool size to the general performance of the company. The payment of the employees’ incentives should also be linked to the individual’s contribution to the performance as well as that of the business. If the performance of an individual or the business is poor, the bonuses one should receive should also reduce or even not given at all.

Payment of bonuses and other forms of compensation should be different during the different seasons (determined by the level of profits or losses). If the firm has made losses, bonuses should not be offered or the payment can be deferred. “Payments should not be finalized over short periods where risks are realized over long periods (Ethics World 2009). ” Also the board of directors must disclose the information regarding the compensation practices to promote engagement by the stakeholders.

The supervisors that are appointed should be able to access the information that is needed in the evaluation of conformance to the laid down principles (Ethics World 2009). Conclusion The main purpose of offering bonuses to employees is to motivate them to work hard towards the better performance of the company. This means that if they work to their best, this should be manifested in the better performance of the firm and thus they should be rewarded with bonuses. However, if the company is not performing and is in the process of collapsing, this definitely would mean that the management is faulty and do not deserve any bonuses.

Therefore it would be very unethical to allow the shareholders to suffer the loss alone as a result of the board of directors and executives awarding themselves hefty amount of options as bonuses or other forms of executive compensation at the expense of the shareholders. Since sometimes the boards may be tied to give these bonuses by the contractual agreement, it should be very careful in ensuring that it is clearly indicated in the contract that bonuses will be offered to the executives if only there is performance at both the individual and business level.

If the company is collapsing, it goes without saying that bonuses should be withheld.

References

Amira, D. (2009, March 17). “Are AIG bonuses ruining Obama’s big plans? ” Daily Intel. Retrieved May 6, 2009, from http://nymag. com/daily/intel/2009/03/obama_aig. html Andrews, E, & Baker, P. (2009). “Bonus money at troubled AIG draws heavy criticism. ” The New York Times. Retrieved May 6, 2009, from http://www. nytimes. com/2009/03/16/business/16aig. html? _r=2 Editors. (2009 Jan. 29). “Bonuses for bad performance.

” The New York Times. Retrieved May 6, 2009, from http://roomfordebate. blogs. nytimes. com/2009/01/29/bonuses-for-bad-performance/ Encyclopedia of Management. (2007). Executive compensation: Executive bonuses. Retrieved May 6, 2009, from http://www. referenceforbusiness. com/management/Em-Exp/Executive-Compensation. html Ethics World. (2009 May 6). “Executive compensation. ” Ethics World. Retrieved May 6, 2009, from http://www. ethicsworld. org/corporategovernance/executivecompensation. php#ceopay

Knight, K. 2009. ‘Ethics-Definition,’ Catholic Encyclopedia, Retrieved 31 March, 2009, from http://www. newadvent. org/cathen/05556a. htm Lopez, G. & Ross, M. An analysis of executive compensation. Retrieved May 6, 2009 from http://www. scribd. com/doc/231352/An-Analysis-of-Executive-Compensation Quijano, E. (2009). Obama tries to stop AIG bonuses: How do they justify this outrage? Cable News Network. Retrieved May 6, 2009 from http://edition. cnn. com/2009/POLITICS/03/16/AIG. bonuses/index. html

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