During the recessionary times of the late 1980s and early 1990s, many companies turned to their workers for pay concessions in response to sagging profits. In other words, as profits declined, managers asked ordinary workers to make sac¬ rifices in their compensation levels. However, the managers were not willing to participate in the worker’s pain. For example:

* While profits plunged 97 percent in 1989 for Commodore International Ltd., Chief Executive Irving Gould received a 40 percent pay hike. His salary was larger than the company’s net income for the year.

■ According to a survey of 325 large corporations in 1989, corporate profits fell 4.2 percent and executive cash compensation rose by 8 percent.

CHAPTER 22 Rewarding Performance 1025

■ In 1989 at General Motors, Chairman Roger Smith’s annual bonus fell by 7 percent to $1.4 million, profits fell by 13 percent, and worker bonuses dropped by 81 percent.

[SOURCE: Adapted from Carol Hymowitz, “More Employees, Shareholders Demand that Sacrifices in Pay Begin at the Top,” Wall Street Journal (November 8, 1990), pp. Bl, B5.

Reprinted by permission of The Wall Street Journal, © 1990 Dow Jones & Company, Inc. All Rights Reserved Worldwide.]

a. Based on the examples above and the data in Exhibit 22-8, do you perceive any equity problem or ethical problem in the relative pay treatments of or¬ dinary workers and top managers?

b. Why do you think the pay gap between top managers and workers appears to be more pronounced in the United States than in other countries?

c. In the two examples above involving Commodore and General Motors, did the top managers act ethically in accepting the high level of pay, given the circumstances?