Framework

Four arguments for high pay, tested

The question it answers

When a board approves a very high pay package for its CEO, which argument (talent, effort, contribution, incentive) holds up under objection, and which collapses?

Origin
Rawls, 2001; Scanlon, 2013; Dietsch, 2008; Boatright, 2010; Moriarty, 2009
Diagram type
Comparison table
Level of analysis
Firm
Topics
Ethics & corporate governanceCorporate finance
Clay balance scale with two level glass pans, icon for business ethics

Diagram

Four arguments for high pay, tested

CriterionClaimMain objectionDoes it hold?
TalentThe market pays the more talentedTalent is natural luck; its market value depends on supply and demandWeak
EffortThey work harder and bear more riskHard to measure; capacity for effort is partly talent; risk is lower than in many jobsWeak
ContributionThey create a lot of valueOutput results from the division of labour and social cooperation; marginal productivity breaks down at scaleWeak to moderate
IncentiveHigh pay attracts talent and aligns interests with shareholdersTrue under competitive markets and good governance; in practice boards can be capturedModerate, conditional

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Boatright, J.R. (2010) ‘Executive compensation: unjust or just right?’, in The Oxford handbook of business ethics. Oxford: Oxford University Press, pp. 161–201.doi:10.1093/oxfordhb/9780195307955.003.0007Source page
  2. Dietsch, P. (2008) ‘Distributive lessons from division of labour’, Journal of Moral Philosophy, 5(1), pp. 96–117.doi:10.1163/174552408x306744Source page
  3. Moriarty, J. (2009) ‘How much compensation can CEOs permissibly accept?’, Business Ethics Quarterly, 19(2), pp. 235–250.doi:10.5840/beq200919212Source page
  4. Rawls, J. (2001) Justice as fairness: a restatement. Cambridge, MA: Harvard University Press.doi:10.2307/j.ctv31xf5v0Source page
  5. Scanlon, T.M. (2013) ‘Giving desert its due’, Philosophical Explorations, 16(2), pp. 101–116.doi:10.1080/13869795.2013.787437Source page