Expert Panel: High Executive Pay Ethically Problematic in Poor EconomyBy Tim Arnold
The symposium, held at the Law School in February, featured industry experts and scholars examining business ethics and corporate responsibility.
Panelists at a session on salary and bonus formulas discussed the social, ethical, economical, and legal aspects of corporate executive compensation. The panel, moderated by Professor George Rutherglen, also included Professor George Geis, director of the Law School’s Program in Law & Business; William P. Carmichael ’68, chairman of Columbia Funds; and Bardenwerper, vice president, general counsel, and secretary of Towers Watson and Company.
The disparity between executive compensation has grown enormously over the past 20 years, according to Geis. One common measure of compensation compares executive pay to that of the average worker. Twenty years ago, corporate executives were paid 140 times more than their employees. Ten years ago, the number grew to 500 times that of employees, Geis said. “The question is, ‘What are you getting for what you pay?’”
Panelists discussed how the disparity is particularly conspicuous in light of the recent economic breakdown. Bardenwerper called the salary disparity “a rending of the social fabric.” Carmichael pointed to a decrease in morale among employees and especially stockholders at the prospect of huge bonuses amid the collapse of several companies and a severe recession.
Panelists agreed with Geis that legal remedies are problematic. “I don’t think that you can legislate a solution to the agency/cost problem,” Geis said. “What would that look like? I just don’t think there’s an easy answer, at least not in the eyes of the law.”
“You can lecture to people on ethics, but you can’t make them be ethical,” Carmichael said. Company boards must restrict or direct executive behavior and compensation, he said.
The panel discussion can be heard at http://bit.ly/gSu8Fr.