I teach an undergraduate ethics course at Princeton University entitled, “Business Ethics and Modern Religious Thought.” Last year’s final exam asked the students to answer this ethical question: “Is CEO compensation just, or just obscene?”
In light of this, I was very interested to read the recent Wall Street Journal article title, “Sprint Adjusts Bonuses:
Executives Pay Won’t Be Hurt by Costly Apple iPhone Deal.” Apparently, when the performance targets and metrics were put in place for the telecommunications company’s executives, the costly iPhone deal was not anticipated. And without lowering the performance targets, the executives would not have met their performance targets and therefore not received their bonuses.
This is certainly a generous thing for the board to do; whether it is a fair thing for the board to do is another question. It may undermine the credibility of performance based bonus plans. If top level executives are given a free pass when missing performance targets due to ‘things outside their control,’ one wonders, is that same kindness shown to entry level sales reps and other lower ranking employees when the vagaries of tough market or client situations prevent them from meeting their numbers? The article suggested that “a broad range” of other employees “were eligible for the short term compensation plan,” but is unclear what that really means.
I’m a big believer in performance based-compensation plans. Shareholders, executives, and other employees can benefit; but only if these plans
are ethically and equitably administered. If senior executives are taken care of when unanticipated business decisions negatively impact their performance (and therefore their bonuses), I hope that same largess is shown toward middle and junior level employees, too.
What do you think?