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1. Do you think executive compensation in its various parts (i.e. salary, stock options, and
severance packages) funded at the current levels is unethical? If so, how would you revise the
compensation so that it was just? On what basis would you change it? Does the government have
a role to play? If so, in what manner?

Executive Compensation is a broad term for the monetary payment given to an

organization's bosses or the executives. The various Compensation packages are agreed upon by

a company's Board of Directors with the sole aim of boosting the executive’s output with regard

to the organization. This will have a positive effect on the organization’s Performance and will

lead to the accomplishment of set goals. However, this compensation mostly tends to be

unethical since the board members deciding on the forms and packages do not look at it from a

multi-dimensional perspective. They focus more on the executive’s happiness while at the firm

while overlooking other factors. Some tend to pay the executives more than 20 times the average

salary (Mehran, 2005). Apart from sparking resentment and anger among employees, this is out

rightly unethical.

Due to the unethical Rewarding of executives the compensation needs to be reviewed

to ensure smooth running of the organizations. There is the need to assess the executive

compensation. This is being done by looking at several factors: One of the most common ways

of assessing executive compensation is by equating pay to performance. Looking at pay versus

stock performance will help show if the executives are overpaid. If an executive’s pay increases

with increase in stock price, then, the executive is not overpaid. Additional ways of assessing the

compensation is by looking at one executive and parallel him/her to his or her industry peers.

This helps in establishing a common base by which the executives should be paid.

Compensation Management also needs to be put in place since it brings to the fore

some form of justice. Compensation Management is the practice of balancing the work-
employee relation by providing monetary and non-monetary remunerations to employees.

It consist of giving employees rewards ranging from bonuses, to overtime pay, and percentage

commission on sales

The government on the other hand can ensure ethical and moral payment standards

are upheld at all times and by all organizations by coming up with executive compensation rules

and regulations by which all organizations may abide (Graham, Li and Qiu, 2012). The

government needs to come up with ways and means that will help satisfy investor concerns over

executive compensation issues. The government also needs to deal with tax loopholes were

making it easier for boards to warrant large payments and cover up these payments from

investor.

2. Is the Sarbanes-Oxley Act too strict, not strict enough, or just right? Explain

The Sarbanes-Oxley Act of 2002 (SOX) was enacted by the U.S. Congress in 2002.

Sarbanes-Oxley has focused primarily on reestablishing investor confidence in the financial

markets by protecting the investors from the possibility of dubious accounting activities by

businesses. The SOX Act introduced strict reforms to improve financial disclosures from

businesses and prevent accounting malpractices. The SOX Act was created to protect investors

by improving the accuracy and reliability of corporate disclosures in response to accounting

malpractice in the early 2000s. The Sarbanes Oxley act of 2002 is obligatory and all

organizations large and small must comply (Abdioglu, Bamiatzi, Cavusgil, Khurshed and

Stathopoulos, 2015).

This has brought about harsh realities of implementation costs for businesses. The

unknown factor is whether Sarbanes-Oxley's implementation will ultimately outweigh the

significant compliance costs. The high cost of implementation is a major factor in businesses

delaying full compliance. Insufficient resources and time constraints are another challenge, lack
of sufficient guidance from external auditors and documentation issues are other challenges

faced in the implementation of the Sarbanes Oxley Act.

This act however, is just right in the sense that it caters for almost all parties within

the business environment. This is seen in that it aims at protecting investors from shady business

deals by ensuring there is accountability and disclosure from businesses. This will help increase

the investors’ confidence and thus enhance proper and smooth running of the businesses due to

availability of the required inputs sourced from these investors. This will in the long run benefit

both parties, that is, the businesses and investors.

 References

Abdioglu, N., Bamiatzi, V., Cavusgil, S. T., Khurshed, A., & Stathopoulos, K. (2015).
Information asymmetry, disclosure and foreign institutional investment: An
empirical investigation of the impact of the Sarbanes-Oxley Act. International
Business Review, 24(5), 902-915.

Graham, J. R., Li, S., & Qiu, J. (2012). Managerial attributes and executive
compensation. Review of Financial Studies, 25(1), 144-186.

Mehran, H. (2005). Executive compensation structure, ownership, and firm

performance. Journal of financial economics, 38(2), 163-184.