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Introduction to Business 2e

Ethics Activity

Introduction to Business 2eEthics Activity

Ethics Activity

Are top executives paid too much? A study of CEO compensation raised many questions from investors and others. CEO pay for S&P 500 companies in 2024 was 285 to 1, as compared to the average worker. That is considerably larger than the ratio in the late 1980s, which was around 60 to 1. The Securities and Exchange Commission (SEC) now requires public companies to disclose full details of executive compensation, including salaries, bonuses, pensions, benefits, stock options, and severance and retirement packages.

Even some CEOs question the high levels of CEO pay. Edgar Woolard, Jr., former CEO and chairman of DuPont, thinks so. “CEO pay is driven today primarily by outside consultant surveys,” he says. Companies all want their CEOs to be in the top half, and preferably the top quarter, of all CEOs. This leads to annual increases. He also criticizes the enormous severance packages that company boards give to CEOs that fail. For example, Carly Fiorina, former CEO of Hewlett-Packard, received roughly $21 million in cash severance—and about $40 million in total exit compensation including stock and pension—when she was forced out in 2005.

Using a web search tool, locate articles about this topic, and then write responses to the questions in the Ethical Dilemma section below. Be sure to support your arguments and cite your sources.

Ethical Dilemma: Are CEOs entitled to increases in compensation when 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 of compensation for their highest top managers, and what effect is such disclosure likely to have on executive pay?

Sources: U.S. Securities and Exchange Commission, “SEC Adopts Rule for Pay Ratio Disclosure,” https://www.sec.gov, accessed September 21, 2017; Irv Becker, “Why CEOs Aren’t Overpaid,” Fortune, https://fortune.com, June 11, 2017; “CEOs are Overpaid, Says Former DuPont CEO Edgar Woolard Jr.,” PR Newswire, February 9, 2006, https://proquest.umi.com; Elizabeth Souder, “Firm Questions Exxon CEO’s Pay,” Dallas Morning News, December 15, 2005, https://galenet.thomsonlearning.com; “Weaker Company Performance Does Not Seem to Slow CEO Pay Increases,” Corporate Board, September-October 2005, p. 27, https://galenet.thomsonlearning.com; “What Price CEO Pay?” The Blade (Toledo, Ohio), January 20, 2006, https://www.toledoblade.com; Kristin Tousaint, “The Gap between CEO and Worker Pay Keeps Increasing—and Trump's Policies Are Making It Grow Faster,” Fast Company, https://www.fastcompany.com, July 24, 2025; Eric Dash, “Fiorina Exiting Hewlett-Packard with More Than $42 Million,” The New York Times, https://www.nytimes.com, February 12, 2005.

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