Ethics Activity: CEO Compensation (page 242-243)

Are top executives paid too much? A study ofCEOcompensationrevealed thatCEObonuses rose considerablyfrom 20 percent to 30 percenteven at companies whose revenues or profits dropped or those that reported significant employee layoffs. Such high pay forCEOsat underperforming companies, as well asCEOcompensationat companies with stellar results, has raised many questions from investors and others. The highest gap in pay was in 2000.CEOpay at the largest U.S. firms was 376 times higher than that of average workers. The gap has shrunk to only 271 times higher in 2016, but that is still a lot higher than the 59-to-1 ratio in 1989. The Securities and Exchange Commission (SEC) now requires public companies to disclose full details of executivecompensation, including salaries, bonuses, pensions, benefits, stock options, and severance and retirement packages.

Even someCEOsquestion the high levels ofCEOpay. Edgar Woolard, Jr., formerCEOand chairman of DuPont, thinks so. "CEOpay is driven today primarily by outside consultant surveys," he says. Companies all want theirCEOsto be in the top half, and preferably the top quarter, of allCEOs. This leads to annual increases. He also criticizes the enormous severance packages that company boards give toCEOsthat fail. For example, Carly Fiorina of Hewlett-Packard received $20 million when she was fired.

• AreCEOsentitled to increases incompensationwhen their company's financial situation worsens, because their job becomes more challenging?
• If they fail, are they entitled to huge severance packages for their efforts?
• Should companies be required to divulge all details ofcompensationfor their highest top managers, and what effect is such disclosure likely to have on executive pay?