By Jeremy Woo
The Occupy Wall Street movement may be over, but an anti-business sentiment still lingers. Corporate executives have come under fire for continuing to accept millions of dollars in compensation while thousands lost their jobs and received pay cuts in the recent economic downturn. Thus, calls for significant salary cuts and even a maximum wage have stemmed from the sourness. More radically, major news sources such as the Tampa Bay Times and MSNBC have pondered the idea of arresting, imprisoning or banning CEOs in any industry that took too many risks in pursuit of profit, despite no legal wrongdoing.
Though CEOs of large companies in many sectors made poor business decisions, law-abiding executives should not be punished. Furthermore, they have every right to earn their current salaries.
Firstly, it only takes simple logic to realize that CEOs can’t be punished for following the law. In cases where executives break the law, they should be brought to justice by their government, and those who do not break the law should be allowed to pursue wealth without restriction.
Poor business decisions cannot be punishable by law or otherwise, regardless of the corporation’s size or the number of people affected. For example, the president of a lemonade stand buys too much sugar and is forced to close. The neighbourhood is left without lemonade, and the little sister without a job. Does this poor business decision warrant punishment simply because the decision negatively affects other people? If executives were punished by authorities for making mistakes, few would want to enter the corporate world or go into business. While the wages earned by CEOs are certainly above average, company owners — via an elected board of directors — legally approve of hefty compensation and accept the risks because commerce has inherent risks. Clearly, arresting or punishing law-abiding corporate leaders simply for popular appeal is illogical, whether lemonade stand or financial institution.
Additionally, company executives do not have malicious intent with their actions. CEOs have a strong incentive to make smart decisions that positively affect all stakeholders — shareholders, employees and, by extension, the economy. Corporate leaders have a personal reputation to uphold with every business decision that they make. One false move could quickly ruin an executive. As with any employee of any company, a CEO’s job is on the line, and the owners could revoke employment very quickly. Also, executives are mostly compensated based on corporate performance with only a small base salary, naturally giving a CEO great incentive to make wise choices. For example, Meg Whitman, CEO of Hewlett-Packard, has no salary at all. Warren Buffett, CEO of Berkshire-Hathaway, takes home a salary less than an average family doctor or lawyer. The remainder is all based on performance, much like running the local lemonade stand, meaning that executives are driven to care about economic well-being. Executives may have played a role in the recent recession, however, not intentionally as their livelihoods were also on the line.
Finally, executives should be able to earn significant compensation, free of limitation. For example, if one was put in charge of a thousand lemonade stands instead of a single location, one would expect much more pay for the added responsibility. If there was a cap on the amount one could earn or if one had their earnings significantly reduced, what incentive would there be to become a business leader? What incentive would there be to produce better results and improve productivity? What incentive would there be to strive to advance in one’s career in the corporate world?
The technological gains, the scientific breakthroughs and the innovation that mankind enjoys every day is not based on human ingenuity alone, but the drive for compensation, improvement and advancement. Limiting financial compensation for effort would effectively reduce one’s incentive to achieve better economic results.
The sour taste for corporate executives is understandable, however, their bad choices do not make them criminals worthy of bans, fines or prison time if they followed regulations and laws. Like all humans, CEOs need incentive and compensation in return for their responsibilities to corporations, society and advancement.
When times are tough, it magnifies the fact that a select few have more lemons than others. However, it does not mean that those who have more should be punished for unfounded crimes or shouldn’t receive as much. Instead of pointing fingers, let’s all work together, grab the sugar and get busy turning our economic future into lemonade to quench everyone’s thirst and desires.